Are Financial Advisors Competitive?

Insights

• A generational shift of trillions of dollars in underway from baby boomers to their millennial and Gen Z heirs.
• Financial advisors are often caught around inefficient technology that slows down how they deliver advice. Historically, in 90% of cases, heirs changed financial advisors as advisors aren’t tech-savvy.
• Financial advisors need a regulatory-compliant, provider-agnostic, federated solution to handle multiple platforms that is data-led and API-integrated to provides real-time insights and uncomplicated reporting. This will boost efficiency and creates sticky customers that transcend generations.

Fresh regulations deliver better customer outcomes

The new guidelines of the Financial Conduct Authority (FCA) for consumer protection (called “Consumer Duty”) take effect from 31 July 2023. The regulation directs firms to communicate clearly with consumers, offer products at fair value, deliver services that meet consumers’ need, and provide timely customer support.

Firms gear up to comply with the new regulation. But are they prepared?

In October 2022, the FCA reviewed the progress larger firms made on the implementation and governance plans of Consumer Duty. Some firms made good progress, but many are unprepared and unclear on how to go about the implementation.

Shifting trends to shake the financial advisory landscape

Financial advisors must get compliance right to stay competitive as a generational shift in wealth is underway toward millennials and Gen Z, who are the future clients. Baby boomers, with over $78 trillion in assets in the US and £2.2 trillion in the UK, will pass on trillions of dollars to their millennial and Gen Z heirs over the next few decades. Historically, in 90% of cases, heirs changed financial advisors after a wealth transfer because their expectations were completely different from their predecessors. This trend is likely to continue unless financial advisors reflect on their practices and meet client expectations.

Most of the future customers are digital natives who look for tech-savvy financial advisors. Even existing clients expect innovative ways to engage and manage their finances.

AKG and Fluido research finds that advisors still prefer phone and email for communication despite evidence that these mediums are inefficient, expensive, and lead to poor client experiences. These communication modes along with manual processes and high levels of rekeying lead to prospective clients being priced out of advice.

Financial advisors often use multiple advice-execution platforms. However, another survey from Fluido found that firms that use multiple platforms are less efficient. 89% of firms use more than one platform, of which a majority use two to three platforms.

To support the delivery of advice, firms use applications such as CRM, back office, and risk profiler. More than 50% of firms use between three to six applications, while only 4% use less than three applications.

The more platforms and applications a firm uses, the longer it takes it to complete a task. Firms that use five to six platforms spend longer hours per task (Figure 1).

Figure 1. Firms using five to six platforms spend longer hours per task

Source: Fluido, Infosys Knowledge Institute

Firms with 12 applications are the slowest to complete a task (Figure 2). Most firms have yet not integrated their applications, which further slows the process.

Figure 2. More apps lead to more time spent on tasks

Source: Fluido, Infosys Knowledge Institute

Technology can help

Digital-savvy financial advisory firms will grab the majority of the transitioning wealth in the future. This will gradually change investor expectations and transform the industry.

Robo-advisors evolve as a key distribution channel for automated advice and wealth management services 24/7 at a lower cost. Independent robo-advisors have a direct-to-customer approach, while others collaborate with fintech startups to offer in-house robo-advisory services. Robo-advisors are projected to manage assets worth $16 trillion by 2025, up from $0.3 trillion in 2016. Financial advisors embrace the disintermediation of the distribution value chain due to regulatory pressure, digital advancements, and the benefits of reaching out to customers directly. The time and cost to list and distribute new products reduce too. This means more opportunities to attract new segments of retail investors and millennials and more revenue streams for financial advisors.

Analytics is an obvious choice for financial advisors who handle huge volumes of customer data. Managing data effectively helps financial advisors grow their business, predict client behavior, and update investment goals through targeted client acquisition, better decision making, and investment management. These advances also deliver hyperpersonalized products and services across channels and drive significant efficiency in backend operations.

Financial advisors were slow to adopt the cloud, but the pandemic accelerated its use for real-time insights, product innovation, and hyperpersonalization. Financial advisors modernize their infrastructure with polycloud strategies for resilience and better security. This enables portability, automation, open banking, and fraud prevention.

Improve financial advisory efficiency with an all-inclusive platform

Financial advisors are often caught around inefficient technology that slows down how they deliver advice. They need a regulatory-compliant, provider-agnostic, federated solution to handle multiple platforms. A data-led and API-integrated platform provides real-time insights and uncomplicated reporting.

Assisting firms with a plan to be Consumer Duty ready is difficult in near term. For now, advisors at least need a platform that complies with Consumer Duty rules with an audit trail to align with the FCA’s focus on fair value and outcomes within Consumer Duty. The financial watchdog is also keen for advisor firms to use data and dashboards to drive insights, so they become agile and respond instantly to client needs.

All sizes of financial advisory firms struggle to deal with numerous platforms and providers. A flexible and connected client record will help advisors integrate disparate technologies, consolidate data and processes across multiple platforms, and save time and effort. API-led integration or an integration hub architecture provides a 360° view of the business, customers, and relationships through a single dashboard. This reduces manual work and enhances the experience of advisors and clients.

A one-stop shop platform is a powerful tool for financial advisors. It boosts efficiency, improves customer experience, generates new opportunities, and creates sticky customers that transcend generations.