The next generation of financial advice will deliver so much more to so many more of the UK’s consumers that it will be a much needed step change for the market.
Next generation advisers will have far more useful technology at their disposal, both client-facing and business-enhancing.
At the same time, according to global consultancy Alpha FMC, strong macro tailwinds, such as government policy to promote saving and investing, will help increase assets across UK financial services by £1tn to £2.9tn by 2025, about 80 per cent of which it expects to be advised.
This burgeoning market will open new opportunities, but also generate greater competition.
Those new opportunities can be tapped into using what is known as ‘hybrid advice’. One way to look at it is to split the term into two parts: ‘consumer-led’ and ‘human-assisted’ for enhanced clarity on its meaning and value.
Consumer-led is where the guidance and advice are 100 per cent automated or codified, and ‘human-assisted’ is where the advice is a blend of codified and human-based.
Experience tells us that consumers want easily accessible financial support to help better understand their financial situation and improve their financial wellbeing, whether that is guided outcomes, digital advice with some human oversight, or fully-fledged regulated advice.
Advice firms want a means to reduce their costs per client, increase the number of profitable clients per adviser, and to find a way to access the £1tn and more expected to enter the market over the next few years – they need a way to serve lower value clients profitably.
This is where consumer-led and human-assisted advice delivers on all counts.
In a nutshell, consumer-led guidance and advice offers a personalised digital journey that serves both lower and high-value clients.
Consumers are led through a guided process to either: 100 per cent codified advice, fully aligned to the firm’s advice policy; or for consumers who have more complex financial needs, for example due to high levels of wealth or potential tax issues, an introduction to the human-assisted element, ie an adviser, for partial or fully-fledged advice.
Consumer-led advice can reduce costs per client by utilising machine learning and automation.
Whether consumer-led or human assisted, the technology takes the heavy lifting out of the advice process – notably in data gathering, processing and suitability report writing – thus reducing manual intervention to where it is necessary, as well as enabling advisers to serve more clients.
By using consumer-led and human-assisted advice, firms can bring on new lower value clients profitably, with little or no intervention from an adviser, while still providing a quality service to their traditional HNW clients.
Not surprisingly, the anticipated growth in the market and the opportunities presented by the consumer-led and human-assisted advice approach is increasing competition in the marketplace.
Banks and building societies are recognising its potential to offer digital advice to their lower value customer base while also attracting more higher value customers into their advice stream.