New age, new risks for advice firms - The truth about disruption

Russell Andrews is head of solutions at UK, Europe and Asia at SEI Asset Management.

 

As adviser firms progress with technology, Russell Andrews addresses the risks that come with digital 'disruption'...

Despite the advice industry generally being in a position of good health—aided by the ever-increasing demand for advice and long periods of market appreciation—managing a successful advice business is never smooth sailing.    

Successfully accommodating all stakeholders, including clients, advisers, support staff, regulators and shareholders, is challenging and complex, even for just the traditional aspects of the business. With the rise of digital disruption and the need to incorporate technology at the core of the proposition just to remain competitive and meet clients' evolving needs, things have grown that much harder.

The truth about digital ‘disruption'

In reality, the idea of digitally disrupting the traditional analogue advice model has been touted for many years now. In fact, it's now less about avoiding digital disruption or understanding why things are changing and more about determining how to navigate an eruption of digital opportunities and choices.

However, wealth managers are still broadly lagging behind their clients' expectations of a digital hybrid offering, despite the fact that technology solutions in financial services - specifically advice -have become ubiquitous. In 2021, there are tools for essentially everything across front-, middle- and back-office activities. 

As the financial advisory industry addresses this and refocuses strategies on a hybrid advice model, combining traditional and digital, as well as pivots from a transaction-led model to a relationship-based one, there must be an equivalent level of focus on identifying, understanding and mitigating the new risks that they face.

These new risks not only include choice paradox, which can paralyse the decision-making process, but also the risk of operating in a series of vacuums, missing the importance of solution interconnectivity, not adapting the business model in step with a new proposition, and building something that neither clients or advisers want.    

Mitigating the risks

When developing or evolving a client value proposition, whether digital, traditional or hybrid, a fundamental part of the process is identifying your current and target customers and establishing what it is they need from their adviser to succeed. At the same time, it's also critical to recognise your current advisers' needs and, importantly, the target adviser recruits for the future. 

When you are able to establish those two crucial stakeholders' priorities, you need to apply strategic discipline and continuously anchor back to those needs to ensure that whatever you are doing delivers against those needs. Examples include personalisation, confidence, flexibility, transparency, value for money, advocacy, no friction and meeting customer experience expectations.     

Business Goals

Another fundamental part of the strategic planning process, particularly when considering how best to adopt technology, are short-, medium- and long-term business priorities. This should form a critical input to establishing the digital roadmap. These can include:

  • Client Acquisition: If the business is focused on increasing the speed and volume of new client acquisition, it would be prudent to consider tools that can enhance the breadth of lead generation and cost of acquisition, such as social selling or referral tools. The success of client acquisition is often about the ability to on-board them quickly and efficiently, so assessing paperless on-boarding solutions is critical.
  • Client Retention: If the client base is mature but at risk, or even showing signs of attrition, it would be logical to consider digital solutions that can provide improved, more intuitive reporting, curated education and proactive client engagement.
  • Cost to Income Ratio: If the business is suffering from margin compression due to the increasing costs of running the business, a good place to start is looking at adviser inefficiencies to identify solutions that can reduce the cost of advice delivery. There are inevitably a number of repetitive or manual tasks contributing to being time-poor and delivering high-cost-per-case statistics that could quickly be improved.
  • Complete Overhaul: If the business has fully embraced a digital/hybrid overhaul, then it makes more sense to focus on identifying a core strategic partner who can help deliver a digital advice platform infrastructure, so they can then spend less time considering specific tools in isolation.

To mitigate digital transformation risks and deliver business success it's key is to establish the business goals, the client value proposition, the target identity, and key principles. Technology shouldn't be viewed as simply digitising what happens today, but instead it's an opportunity to re-think the entire proposition and business model, focused on what clients value today and in the future.

As we look forward, the inclusion of digital tools and the evolution of hybrid holistic advice models is likely to be one of the next decade's big trends, but to ride the wave successfully, it shouldn't be a transition taken lightly. As clients continue to evolve, large swathes of wealth transfers to a very different generation, and technology opportunities continue to develop, advice firms will need to review their entire mental and business models to ensure they don't let opportunities pass them by.

Source: PA