Digital is highlighting true value of advice

Recently, I spent a week in New York attending both the IN VEST 2016 event and Royal Bank of Canada’s Fintech Investors conference. It was impossible to come away from these events without recognising that advisers are best positioned to take advantage of the major changes that will take place in the personal finance market in the next few years. That said the financial advice businesses of the future will serve far more customers for significantly lower charges. This is not about technology replacing humans, but achieving the best combination of both.

Digital is actually helping highlight the true value of advice and define a price for it. There is actually far more value for consumers in advice, than areas such as asset management and product manufacture that in the past have taken the lion’s share of charges consumers pay.

Digital will fill the advice gap, and established advice firms just need to decide if they wish to participate in this change or close their doors in five to 10 years when lower-cost digital offerings will dominate the advice market. Digital businesses are transforming every industry, and though the prospect may not be attractive to those with a traditional perspective, long-term savings and financial advice is seen as one of the key industries that will be reinvented.

Even if you plan to retire in a few years, adding a digital channel to a firm will increase the value of a business. It is widely recognised that purchasers will pay more for a business with good computerised record keeping. Given the economies digital communication can bring, it is only logical that putting such channels in place will compound this.

Equally, which is more attractive to acquire: a business where all the clients are of an age or one where there is also a stream of new future wealth clients being helped to grow their wealth?

Having personally studied the development of US digital advice at close quarters for the past five years, there are important lessons that can be learned. In that time their market has gone from being one where most players were seeking to attract customers direct, to a situation where most of these organisations have modified their model and now want to enable existing firms to develop digital channels.

I would advise firms wanting to go down this route to understand why they want to add a digital dimension to their existing firm. This should be done as part of creating a clear business plan for your digital advice business. This should also include identifying what you will consider success, and measures through which you can regularly check progress.

Is your objective to attract completely new customers? Do you want new ways of dealing with existing customers; perhaps offering lower-cost ways of helping clients who, post-Retail Distribution Review, are no longer economic?

Over time, digital is going to drive down the cost of financial advice. The key to remaining profitable in such a situation if your audience is different to people you usually deal with, is to find a way to test what you are building with them.

It is crucial both to have a clearly defined understanding of what you are looking for from your technology provider and to create an analysis to compare the different offerings with those available from your current suppliers. From a regulatory perspective you will want some control over which cases can be automated and which get referred for human intervention.

In the same way as well-structured firms conduct regular reviews of their customer proposition and how they meet clients’ needs, prepare for your digital advice channel in the same way so it can become an integrated part of your business.

Ian McKenna is director of F&TRC