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Quilter planning chief: Who will be the winners in the next chapter of disruption?

In my last column, I talked about how I felt we were nearing the end of the consolidation trend that had led to the polarisation between very large firms and smaller regional players, and to a growing advice gap.

However, while this period is coming to a close, disruption to the industry is far from over. Indeed, over the next five years we will see technological developments shift market dynamics again.

Historically, consumers have faced a straightforward choice when it came to their finances: did they want to do it themselves or did they want someone to do it for them?

More recently, however, this dichotomy has begun to break down as robo-advisers have entered the market. They have introduced a new way of delivering advice – the ‘Do it with me’ approach – which allows consumers some management of their finances but with an additional element coming from automated systems.
That said, we have seen relatively low take-up of this iteration of robo in the UK.

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The space needs to evolve to ensure it is tapping in to what consumers want.
As part of this, the gap between face-to-face and robo needs to erode. Robos will match their artificial intelligence with a human touch, and face- to-face firms will look to include more technology in their models.

Indeed, a recent report from the CFA Institute highlights the fact the new industry norm will be an interaction of AI and human intelligence. And so it is perhaps unsurprising the same report found only 4 per cent of advisers were worried their role would not exist in five to 10 years’ time.

The US is way ahead of us when it comes to hybrid advice models and this is driving up efficiency dramatically there.

For instance, technology that is automating systems and compliance processes is enabling advisers to focus on more of the high-value aspects of advice, financial coaching and cashflow modelling. Figures from McKinsey suggest this cuts costs by up to 40 or 50 per cent.

Similarly, global research firm Aite has found US advisers with advanced technology integration generated around 50 per cent more financial plans and investment proposals than their peers. The increased advice activity meant practices could service 57 per cent more clients, with revenue and production 46 per cent greater.
Seeing a similar shift in the economics of advice in the UK will mean the current shape of the market also evolving, reinforcing the positioning of scale players.

Technology is expensive and there is trial and error involved, which plays into the hands of larger businesses with deep pockets.

In the long run, though, once that technology has surpassed its teething stages, it will change things for all-sized firms. Increased productivity for all advice businesses will shift the economics of providing advice, which will strengthen the position of regional firms and re-open the door to new entrants.
Importantly, this means the industry will be able to service more clients.

Andy Thompson is chief executive of Quilter Financial Planning


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