The financial advice industry has changed significantly over the last decade. How do you expect it to change over the next?
It has and it hasn’t. It has been 12 years since Nutmeg launched, with ‘robo-advice’ really entering the industry consciousness in the following years with a plethora of similar firms coming to market – many of which subsequently failed.
Meanwhile, “human” advisers remain in high demand and their business models have not hugely changed over the last decade, aside from a ratcheting up of regulatory costs, along with pressure on fees and fee transparency making scale that much more desirable.
Over the next decade, this consolidation trend is likely to continue, while artificial intelligence (AI) will play an increasingly important role in how clients are serviced. This will allow advice firms to serve clients with smaller accounts more profitably, which should – hopefully – reduce the population of individuals who would really benefit from financial advice but are not yet receiving it.
What changes can we expect to see within the client base?
Many have pointed out how the millennial generation, who had access to computers and smartphones from an early age, are putting new demands on the financial sector in terms of the user experience they expect. They want information instantly and, on their phones, so financial advisers and wealth managers have pursued apps and attractive portals in response.
What is less talked about is the fact that this generation – not to mention those coming up behind – is extremely adept at finding things out for themselves online. This will lead to more people trying to “self-serve” when it comes to investments and financial planning. This might mean advisers are needed on a more flexible basis: clients will come to them to sense check major decisions and issues that benefit from being talked through. How to handle inheritance planning when one child is irresponsible, and another is a religious saver, would be a good example. The desire for human empathy and interaction at times like these will never go away, even as clients are able to source more financial information themselves online.
What specific challenges do you foresee for financial advisers over the next decade?
The adviser segment lags behind other financial services with technology. This massive challenge needs urgently addressing as the time wasted by using antiquated systems is crazy. We’ve spoken to firms that – often thanks to consolidation activity over the years – are running on up to 20 platforms. Imagine the countless hours lost on forgotten passwords, dual-keying, and mastering these different systems.
The advice sector is also facing challenges around fee pressure, rising costs, and further layers of regulation. This has come atop a cost-of-living crisis that has increased client drawdowns and impacted sentiment.
How can financial advisers adapt to meet the needs of inheriting generations?
The technological inefficiency mentioned above baffles younger advisers who came of age with Uber, Monzo, and Apple – incredibly user-friendly and intuitive technologies. Younger colleagues – many of whom will be responsible for serving the ‘next gen’ of clients – consider any system that isn’t completely seamless to be unacceptably cumbersome. The ability to attract and retain the best talent in a competitive sector will be reliant on sorting out this technological spaghetti mess.
This means the best course of action is to adopt modern technology to reduce the administrative burden, leaving more time to focus on a much more rewarding task: providing excellent service as clients move through their various life stages.
What advice would you give to financial advisers currently in their forties and fifties to best position themselves for the upcoming market shift?
Virtually everyone working in the financial advice sector will have seen statistics showing the perilous number of advisers set to retire, with about half saying they plan to do so in the next five years. This raises an interesting – but exciting – challenge for advice businesses, who need to ensure their businesses are future-proofed.
Experienced advisers are certainly more likely to stay in work when they are met with financial reward but also if they have increased personal fulfilment – in particular the ability to achieve an attractive work life balance. Yet the administrative load is only increasing, meaning advisers spend less time on the rewarding aspects of their job, and more on the boring bits. For example, in 2019 the Chartered Institute for Securities & Investments (CISI) estimated that MiFID II had added another 20 minutes of admin around each client meeting. Again, better technology has a big role to play in keeping advisers happy and engaged as they move into their fifties and begin feeling the temptations of retirement.
Given the reduction in adviser numbers, how can the industry ensure it has the capacity to meet the growing demand for financial advice?
Part of the answer here comes via AI, which in future will be able to provide tailored, efficient suggestions for clients with smaller accounts, ensuring they receive the ongoing support they need without the higher costs that are associated with models built solely on the efforts of human advisers. While AI might not be appropriate for all of today’s clients, the next generation will carry their comfort with digital interaction into their pensioner years.
I see AI not as a replacement for human advisers but as a powerful tool that complements their role. Advisers will focus more on relationship management and personal interaction, while AI handles the analytical tasks. This hybrid approach will make quality financial advice more accessible to all, with fewer advisers enabled to serve a broader, larger client base.
