The future of financial planning – part 2

Ben Goss

Ben Goss

In the summer of 2000 London Economics published a report for the regulator on polarisation in financial services, questioning how consumers who needed good investment advice might be able to access it and whether technology might hold the key.

Now, 15 years later, I believe the industry may have reached a turning point, where there is a clear acceptance that digital financial planning technology has a fundamental role to play in extending access to advice.

This has been signalled by economic secretary to the Treasury Harriet Baldwin, who announced the Financial Advice Market Review last month with an ambition to examine access to advice.

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Time will tell whether this government actually grasps the nettle that is access to financial advice.

If they do, the landscape will be transformed, quickly. If they don’t, another 15 years will pass and many more millions of people will not receive the help they need with inevitable consequences for long term savings rates and retirement income choices.

As Steve Jobs famously said though, ‘technology alone is not enough’, financial planning technology needs to be married with:

1. Quality asset and risk modelling;

2. Best practice financial planning rules (which reflect the science of behavioural finance);

3. Financial planners.

The last decade has proven that risk managed, diversified portfolios are a very good answer for investors who have been suitability risk profiled. Behind every major industry mis-selling episode sits the issue of suitability.

If risk profiling is carried out accurately and there is a robust asset model, consistently aligned to it, portfolios should broadly behave as expected. That is not the same as saying investors won’t lose money, but the range of losses and gains they receive should be in line with their plan, their comfort zone and their capacity.

Asset and risk model integrity ensures that suitability is in the DNA of any advice provided, regardless of channel, so needs to be embedded in any financial planning technology.

Pension freedoms are powerful, but the challenge is making good decisions which meet your goals with so many variables. The ‘science’ of de-accumulation is very young and there is a huge need for tools which help customers and advisers engage with, build and test plans.

Is it likely that financial planners and institutions using apps (perhaps with data input by the customer prior to meeting) to discuss the risks and benefits of different approaches with engaging graphics and encouraging ‘nudges’ combined with insights based on ‘other people like you’ could make a difference?

Yes, they already are! Over 1,000 planners downloaded our latest iPad app in 10 days to have exactly this kind of interaction. The feedback has been overwhelmingly positive.

I love Uber cabs. They are convenient, I get a named and rated driver and I also get to track my journey and expenses. The combination of app based technology with human delivery is very powerful.

Think about how the cost and risk to serve customers with financial planning comes down when the client has done some of the work already, an institutional quality asset and risk model forms the backbone of your suitability analysis, and financial planning rules reflecting good science actually assist your customer interaction.