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Ian McKenna: The changing advice market – and how advisers have to adapt


The changing demographics of investment ownership and how advisers might adapt their firms in the light of these was one of the recurring themes of the recent Technology Tools for Today conference in Texas. A series of presenters put forward valuable insights on these subjects and identified that unless firms are proposing to wind down over the next decade or so there is a need to start engaging now with those individuals who will increasingly inherit future wealth.

In presenting Charles Schwab’s view of how technology might affect the industry Neesha Hathi senior vice president of advisor services technology solutions reminded delegates that the iPhone, the device that more than any has transformed customer expectations of how they will receive information only emerged in 2007 and that during Q4 2014 no fewer than 34,000 iPhones were sold per hour.

To reinforce the importance of mobile services she cited recent research suggesting that 93 per cent of ultra high-net-worth clients check account balances on mobile devices, with 65 per cent using mobile to research investments.

Schwab’s research has identified that younger investors look for different attributes in advisers. They are likely to be more informed and will ask far more questions. They frequently look for a different type of engagement with advisers, predominantly looking for the adviser to be the validator for conclusions they have already reached. This is distinct from their parent’s generation who have a far higher propensity to delegate decisions. Key characteristics for advisers seeking to attract younger investors were highlighted as “be open, be knowledgeable and be avalable”. Advisers do not have to be on the phone 24/7 but digital services can provide 24/7 access to information when needed.

Another significant driver in the changing market is expected to be that over the next two decades women are expected to become the major income earners. Extensive research by the Boston Consulting Group called the Big Flip was cited.  This specifically predicts that women will become the dominant earners by 2028, based on the correlation between education and income and the fact that about 10 years ago women in higher education began to exceed men. According to BCG this effect is the same across pretty much all of the developed world.

Adopting personal financial management tools was highlighted as a significant opportunity for additional client engagement. Schwab research suggests US advisers would like to help clients take more control of their spending and, that if advisers can get permission to access spending information, they can play a positive role in helping to coach clients towards goals. Parallels were drawn with Weight Watchers with questions being asked about what can we learn from their use of points and gamification. 

Fidelity’s David Canter questioned if Moore’s Law has finally reached the advisory space and proceeded to present an impressive array of data on why the landscape for financial advice is likely to change significantly in coming years. Today millennials and Generation X only control 4 per cent of invested assets, but this is set to grow to 50 per cent over the next 20 to 30 years. 

He identified that so-called “robo advisers” are achieving around 125 per cent growth year-on-year. In June they only accounted for about 4 per cent of American investors’ assets but by this June the figure can be expected to be significantly higher.

Canter and several other speakers highlighted the need for advisers to shift their engagement models if they want to attract the next generation of wealthy customers. This should raise major questions for the various consolidation plays being built in the UK who are seeking to attract advisers at least in part by offering older principals a potential exit route.

The consolidators are inevitably being constructed with some form of flotation or other long-term exit. For this to be attractive to investors they need to ensure a digital platform is in place that is capable of supporting ongoing growth of the business. Without this there must be a clear risk of the assets under management going into significant decline in just a few years’ time, thus undermining the value of the business.

Canter suggested embracing a digital offering as a way of servicing the next generation of assets should be seen as a natural progression. He highlighted four key questions to consider:

  • What is your defined target investor? 
  • What services are you going to offer and what differentiators?
  • What infrastructure will you need, how will it link to your CRM and financial planning systems?
  • What is your go-to marketing strategy?

In the run-up to the sunset clause I am hearing reports of increasing numbers of advisers surrendering servicing rights to clients with lower levels of investments. As an alternative advisers could consider how they could build low-cost advice solutions.

Ian McKenna is director of Finance & Technology Research Centre


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