[Part 2] Why Should Financial Advisors Adapt to Change?

Having highlighted several of the pain points and changes facing financial advisors in the current climate, we believe there is one solution that stands head and shoulders above the rest as a cure for these ailments: investing in technology.


The digitization of finance is nothing new and has been around for as long as the calculator, but new technology is now forcing traditional finance firms to change at a faster pace than ever before and forge new partnerships in order to compete. The advisor industry is in a very challenging environment and there is a real need for change. It may cost money, and may be difficult to do but being left behind is not an option.


Competing with robo-advisors and helping older clients with retirement, most financial professionals will find themselves face-to- face with big challenges and changes in their industry. The shift towards robo-advice should be a windfall for fintech start-ups but, as ever, brand name still comes out on top. Research suggests most clients are still reluctant to trust their money to a start-up, preferring incumbent advisory firms and retail banks instead. And however informative and interactive the website or algorithm, consumers still want a human interaction with the essential qualities of judgement and empathy. The game is now not upstarts vs incumbents but rather a question of how advisors can absorb the fintech innovations that are blossoming around them.


As such, the consensus view is that advisors should adopt a ‘bionic’ model (a Hybrid-Robo- Advice Service). This is the ongoing industry trend which can be expected to accelerate further in the near future as the logical next step. Ultimately, bionic advisors incorporate computer-based technology into their portfolio management processes through the use of algorithms designed to optimize various elements of wealth management from asset allocation, tax management, product and security selection, ongoing monitoring and trade execution whilst complementing this with face to face interaction.


Investing in technology can meaningfully reduce operational margins. The current trend across the industry is to reduce fees for clients whilst simultaneously enhancing the service. This can only be achieved by trimming the fat of operational leverage and improving systems. Implementing the right technology in the right way will allow advisors to significantly reduce overhead costs and reduce fees whilst maintaining a healthy profit. We believe that we have gone past the point of no return when it comes to margins. Customers will demand more for less.


Advisor firms that service a mass-market and mass-affluent client base are often inherently more vulnerable to the disruption of such technology and, thus, would be wise to adopt it. That being said, high net worth and institutional clients will also start to demand many of the user interfaces and other services that accompany the robo-advice model.


At this point the benefits of the fintech revolution are now becoming clear. For the clients, technology can open up a new world of low cost investment possibilities with flexible portfolios and compelling user interfaces that are accessible, less intimidating and easy to use. Investing is now more enjoyable and easier to fit into one’s digital life.


Whilst for the advisors the benefits include attracting new clients, servicing current clients better, driving user engagement and thus financial literacy, reducing internal costs, creating a stronger brand identity, assisting in the heavy lifting of regulation and suitability and ultimately freeing up more time to be spent with clients.


Developments to streamline the client online experience, provide greater transparency and improve the economics for the mass market are irreversible. The future of the investment management industry is online and you will render yourself obsolete if you don’t figure out how to add value and transform beyond just overseeing portfolios. Financial advisors must transform their businesses and utilise technology. In the next instalment of Privé Insights we shed some light on how we can assist in this transformation.



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