Over the past 10 years, innovations in financial technology, increased regulation and changing generational expectations have challenged our understanding of the client-adviser relationship, and the wealth management industry as a whole.
The rapid growth and proliferation of financial services technology firms has caused a shift in the market by providing digital first, low-cost alternatives; opening wealth management to a broader base of retail, affluent and mass affluent customers.
While the wealth management debate has focused on digital adviser versus human adviser, a third option has emerged - the hybrid adviser model, which combines the best aspects of both traditional human advice and automated digital platforms.
Driven largely by regulators, but also by customers, the size, scale and scope of independent or holistic advice is on the rise, where end-investor outcomes become a primary focus.
Firms that successfully employ the hybrid adviser model will be empowered to evolve their business, attract a new generation of customers, and serve them in a flexible and cost-effective way while realising greater agility in their business model, technology, and product offering.
Genuine hybrid capability
There are hundreds of use cases for codification and algorithms to be applied to wealth management practices, be it client onboarding, risk assessment and smart profile matching, portfolio rebalancing and tax efficiency management, or reducing administrative functions.
The launch of the first AI-based adviser, Pefin, in the US, is perhaps the starting gun for wide-scale adoption of augmented intelligence to support wealth managers.
On the other side of the pond, the common regulatory framework within Europe, given Mifid II rules on suitability definitions such as ‘packaged retail investment products’ and ‘personal recommendation’ and clarity on GDPR in terms of what constitutes personal data, allow for a stable base to build a foundational framework for algorithms for hybrid advice.
It is particularly exciting to see what incumbent firms and fintechs are doing to drive productivity, efficiency and robustness in the way advice is deliverable in the UK and Europe.
Future of advice – all roads lead to hybrid
Having worked with major retail advice participants globally, including wealth managers, insurers, asset managers and banks - we think that the hybrid model is the future format through which wealth management and advice will be delivered.
The field of behavioural finance has already started to see mainstream applications of monitoring systems in countering biases in modelling, asset allocations and stock selection in asset management.
The overwhelming body of work done by risk profiling experts such as Oxford Risk, Finametrica, etc. has already laid bare the issues that exist in the poor ‘heuristic’ process of old wealth managers.
Implementing algorithms on various client, product, tax and regulation advice rules requires some serious number crunching, but this is now becoming possible on simple advice and investment procedures.