Guest Blog: Technology and the Future of Financial Advice

Technology has the potential to enhance services for customers and bring greater profits for both client and advisor, writes Ben Goss, co-founder and chief executive of Dynamic Planner, a leading provider of digital risk profiling and financial planning technology for advisors. He has long believed that technology needs to play a critical role in helping advisors serve consumers and helping consumers access the advice they need.

Technology arrives in waves and is embraced over an adoption curve. These waves are growing stronger – in large part because technology is becoming ever more powerful. Over time, we have seen these waves play out in financial planning, too. When I talk about financial planning what I mean is helping a customer achieve their goals at a cost and risk that is right for them. On one level that might mean a full-blown, multi-line cash flow plan; on another, it might mean a simple recommendation of a multi-asset product with goals that are in line with a client’s growth or income needs.

If we look back at how financial planning has been delivered over the last decade, we can see a revolution from the conversation on the couch to something much more scientific.

This has not just affected the way in which advice has been delivered, but has radically altered the nature of the investment landscape. The rise of multi-asset products and passive investments are very much a function of this move to risk-based investing. It is a structural shift, not a tactical one.

Industry Challenges

It is worth looking at two of the challenges faced by the industry now. The first is demographics. Clients have grown older and wealthier, but they are not being replaced within the market for traditional advice services. This is creating an advice gap for firms who need to replenish their client bases. Potentially, digital changes everything and opens up planning and advice to all. Look at what happened to travel agents. We can see the beginnings of this trend with new entrants starting at the bottom of this hierarchy of automation – trying to access consumers left behind. The question, however, is how far can digital go, because the further up the pyramid you scale, the more challenging things become – not because of technology, but because of behavioral barriers. The second big issue is that consumer engagement is challenging. Long-term thinking hurts. As Daniel Kahneman articulated in Thinking, Fast and Slow, human beings do not easily think about the future in an analytical way and there remains room for improvement in financial literacy among the public. Add to that the low levels of customer trust for the industry and many consumers are not switched on to the benefits of financial advice.

Enhanced Services

Why else has the industry not made more progress over the last 20 years? There are several big blockers. We have talked about customer engagement. Many firms, particularly larger ones with substantial legacy, struggle to prioritize target client groups and their proposition.

Given that to achieve action advisors are a critical part of any service, bringing advisors along and helping them understand what is in it for them is key. Ensuring investment suitability is also a fundamental challenge, so is building bridges between data islands needed to deliver financial planning or advice with fintech. If this can be achieved, though, the benefits are huge:

• Enhanced services for customers increasingly used to a digital world
• Reduced costs and potentially greater profits for both client and advisor
• Reduced risk for all parties
• And finally, greater access to advice for customers who need it

I touched on suitability and this is key. The regulatory standard of suitability and knowing your client has grown significantly in the last 10 years and is set to increase further ahead of a changing global regulatory landscape.

Products will, without doubt, become more sophisticated and this will mean that advisors can recommend solutions with the potential to deliver good outcomes at lower costs, whether that is advisor led or a hybrid model, or indeed, customer self-serve.

National Financial Literacy Test Results in the United States

Source: National Financial Literacy Test Results. The test covers ten subjects covered in the Financial Literacy Framework & Standards and is designed to measure motivation to learn, subject knowledge and recognition of the first step.