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Tools of the trade

Personal financial management solutions are set to change the way advice is delivered for good, says Sim Sangha, sales director of Sammedia, allowing advisers to engage more effectively with clients and helping them meet regulatory requirements

The emergence of personal financial management tools is widely viewed as the next breakthrough in financial services. These tools are tipped to change the way traditional financial advice and service is delivered to the market, regardless of a client’s net worth.

The basic premise of PFM tools is they offer consumers a one-stop-shop through which they can view their entire wealth from bank accounts, credit cards, properties, tangible assets and the whole spread of medium to long-term investments.

Many such tools are now emerging for advisory firms, allowing them to offer such functionality under their own brand. But who will really capitalise on this?
In any industry, every once in a while a breakthrough occurs that changes the way things are done. Nobody ever asked for the iPod, iPhone or iPad but somebody had a breakthrough moment on a new way to deliver music and the internet.

Apple did not ask people if they wanted one but simply delivered it and, in doing so, the company demonstrated innovation and expediency.

Early adopters benefited hugely by positioning their businesses around these breakthroughs. The first record companies to sign up to iTunes achieved the best commercial distribution deals compared with those who followed. Consumers gained faster and easier access to music and, within a relatively short period of time, buying music online in this way has become the norm.

Amazon built its model based on the early growth of the internet but, like many of the early start-ups, it was a while before it became a trusted brand. It became a front-runner by building familiarity, acceptance and trust and became one of the most powerful and highly regarded online brands.

Significantly, Amazon also solved a different problem. Rather than becoming a me-too company, it created an overwhelmingly simple and useful website that provided customers with a new approach to buying books and entertainment online.

Having captured an impressive and growing share of the market, Amazon has since opened up its infrastructure to allow other suppliers to promote their products, effectively turning competitors into customers.

Using this analogy, PFM tools have already started to demonstrate their potential as a true breakthrough solution, helping advisory firms solve a problem while staying relevant to people’s everyday lives and reducing the near competition in the process.

Giving clients the ability to control their everyday finances alongside their medium to long-term investments, managed by an advisory firm, creates a foundation for much more frequent brand interaction. The implications of this in terms of permission-based marketing, brand familiarity and creating embedded value for the firm are huge.

PFM tools can also provide assistance with a number of important regulatory requirements. First there is know your client.

How many advisers can say their fact-finds are based on real-life income and expenditure data sourced directly from clients’ banking statements?

Until now, the majority of the advice industry has provided recommendations built on clients’ guesswork. PFM tools provide fact-finding in the true sense of the term.

Second, PFM tools can help firms adhere to the FSA’s recent risk suitability paper by comparing real lifestyle income and expenditure habits against the perceived risk a client is prepared to take.

Clients often have a skewed view of how much money they actually have and where it goes but PFM capability can provide clarity and facts on how much risk a client should realistically take compared with what he or she is willing to take.

Such tools also have the potential to incorporate goals and objectives. If this is underpinned by a robust investment proposition, it will form the basis of a whole new way to deliver financial advice.

Third, we are in an environment where firms are under pressure to justify the fees they charge. Many firms are in the midst of moving towards fees and are in the process of formulating their fee structures and associated service propositions.

Moving from an environment where clients have traditionally assumed advice was free presents the challenge of how to articulate the value that an advisory firm delivers. The right PFM solution can prove a highly tangible, relevant and visual reporting service which clients can use to interact on a regular basis.

PFM capability can also assist in servicing the zero-strategy or non-active client segments. Not everybody wants or can afford financial advice but, in uncertain economic times, more people would want to gain greater control of their finances and budgeting. In the US, credit unions have adopted PFM tools aggressively to attract younger members and capitalise on the mistrust in the banking world.

If advisory firms are serious about helping clients meet their goals, PFM technology can represent a cost-effective means to re-engage and service the entire client base rather than the just high net-worth segments.

At the very least, it can help advisory firms take the credit for assisting people to become more financially savvy.

Very rarely has this industry had a breakthrough moment, especially one that delivers an online advantage against the banks and other well resourced financial institutions.

Just like the breakthroughs of the past, PFM tools will be the norm in a decade’s time but right now they give advisory firms, big and small, the ability to punch way above their weight and capture a share of an increasingly competitive market.

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