The advice landscape is changing and with it so must advisers’ approach to innovation.
Today’s consumer demands and regulatory requirements are a far cry from those seen when many advisers first joined the industry, requiring a fresh approach to the newest technologies in order to stay competitive.
A 2016 survey by the Association of Professional Financial Advisers, which now forms part of trade body the Personal Investment Management and Financial Advice Association, found 69 per cent of advisers had turned away clients in the past 12 months. It is a statistic Ruth Handcock, chief executive of Octopus Investments, labelled “phenomenal”.
Speaking at the FTAdviser Innovation Masterclass earlier this month, Ms Handcock said she was yet to come across another industry in which businesses are not actively trying to acquire customers.
Key points
- Robo-advisers have been used by companies to try to plug the advice gap.
- The robo-advice market has been slow to take off and some offerings have closed.
- By using the right technology, human advisers could be key to the advice industry’s future.
This, combined with a looming adviser exodus from the profession, had created an “industry in crisis” in which attention had been turned to technology, namely robots, to plug the advice gap, Ms Handcock said.
She said: “The thing with robo-advice is you really have to understand what customers are looking for in their financial advice... but a lot of people have a trust barrier to overcome in not trusting robots or computers to be acting in their best interests.
“Fundamentally because they don’t believe a computer understands their goals and aspirations.”
Ms Handcock said artificial intelligence might be able to emotionally engage with customers in the future, but it was currently not able to connect with consumers in a way that builds trust.
Perhaps this, despite CB Insights reporting in 2017 that $1.4bn (£1.1bn) had been invested in the robo-adviser industry since 2013, is why we are yet to see any robo-advisers that can hold up a “profitable, sustainable business”, the Octopus boss said.
Human technology
The advice industry has not been an easy one for robo offerings to infiltrate.
In May, Investec announced the closure of its Click and Invest robo-advice business after two years of losses, stating the reality of the industry was that appetite for its service had remained low and the market itself was “growing at a much slower rate than expected”.
UBS also closed its SmartWealth robo-adviser in 2018.
Results season this year saw robo-advisers stay in the red, with Nutmeg and Wealthsimple posting losses of £18m and £3.6m for 2018.
Ms Handcock said: “So actually my money is on the adviser. How do we make the people who are able to deliver financial advice more competitive?
“Make them the winners and actually make people who are interested in investing in the sector, interested in growing the sector, the power of humans to fill this huge gap we know we’ve got in financial advice.
“The future I like to think is bionic for the advice industry – technology-enabled humans.”
So why should these tech-powered advisers be using innovation to their advantage and where can it be deployed to optimise performance?
Firstly, cost: how can advisers serve the same number of clients while reducing costs?
Ms Handcock said: “How can you reduce the amount of admin resources that you need in your organisation?
“Someone I spoke to this week, in their firm had done some timesheet monitoring and 80 per cent of the time, one of their admin assistants spent rekeying information between the systems, for a task that technology should do in its sleep, but yet that’s still the case in many advice firms across the country.”
Increasingly, Ms Handcock said, she is seeing advisers videoing or audio recording meetings which, depending on the risk appetite of a business, can provide all the evidence needed for a file review instead of transcribing a conversation - a “huge, huge time saver”.
Likewise where innovation can save on costs, it can also boost revenues – in particular by expanding an adviser’s service to customers who would usually fall outside of the client base.
According to Ms Handcock digitally enabled guidance services, as opposed regulated advice, could soon gain popularity among advisers as a means to serving clients at a “completely different price point”, while still returning profit.
She said: “When you talk to different firms, people are extremely nervous about guidance and advice and they perhaps don’t feel like the regulatory framework is sufficiently well advanced that it’s something they want to explore deeply.
“But a lot of people I speak to are investigating if there are ways you could take customers further down a purely digital journey, and have people nudging them along the way that are not trained financial advisers, but rather they are guides.”
Futureproofing an exit plan
For those advisers who are setting wheels in motion to leave the industry, using the latest technology to innovate business models and remain competitive is equally important.
Earlier this month financial services giant Canada Life predicted consolidation was a wave that is “primed to grip” the advice industry.
Likewise, introducer Soprano Mergers & Acquisitions recently predicted transactions in the market were set to “accelerate significantly” with an increase in both supply and demand for companies of all sizes.
In a market this competitive Mark Loosmore, executive general manager wealth at Iress, said both ends of the acquisition chain need to have good technology in place.
He said: “There are two sides to it. One is for the adviser that is doing the selling, it’s about being efficient, but it’s also about being able to prove things.
“So having accurate data and demonstrating what the shape of your business actually looks like, so it can be valued correctly. Otherwise the acquirer will discount it.”
On the flip-side Mr Loosmore suggested a buyer also needs sufficient technology in place to integrate the acquired business into their own as quickly as possible.
He added: “If you are going to buy a firm which maybe has 10 advisers and however many thousands of clients and you are trying to onboard that without the right technology, you have got issues.”
Elizabeth Basten, chief marketing officer at digital adviser Wealth Wizards, said if a buyer is looking to purchase an advice business that will survive in the future, taking into consideration the profile of its client base and potential for growth, then innovation is key.
Ms Basten said: “If you are looking at practices and the advice process in the future, if you don’t embrace technology and use it in a way that facilitates connections to grow your business and retain the customer base, then there won’t be much to buy.”
Rachel Mortimer is a reporter at FTAdviser and Financial Adviser
