Journal of Financial Planning: January 2018
Anthony Stich is chief operating officer at Advicent Solutions, a leading provider of SaaS technology solutions for the financial services industry, servicing the world’s largest financial institutions.
It is customary to kick off the new year with a prediction column of sorts. Usually this column summarizes the last year’s technological advancements and industry influences that will arguably shape the future of our profession. Each year, just as sure as the seasons change, so shall I provide my thoughts on how advice delivery will evolve.
I would like to preface this column by pointing out one thing: it is difficult to elucidate a specific incident that will happen in 2018. Rather, my “prediction” will highlight the evolution that is already occurring: the role of the adviser and client will continue to blur, moving us further toward the world of “hybrid advice.” Hybrid advice is relatively new terminology that has begun to permeate the market. It is an interesting area of advice, sandwiched between our two current advice delivery models.
The first advice model is not a recent trend, but rather, the way things were: traditional advice delivery, typically to baby boomers. Traditional advice delivery is what we all know—advisers or other financial professionals visiting with their clients episodically throughout the year, delivering hard copy financial plans. These meetings were relatively thorough—as baby boomers required a great deal of service—and were “costly” to advisers. For the sake of this explanation, we should not limit these clients to just baby boomers; let us refer to them as “delegators,” those who do not wish to perform any part of the advice process, merely delegate the work to their adviser.
The other advice model—what we are witnessing today—is consumers who want very little interaction with advisers, either because they merely do not wish to engage or they do not have enough investable assets. These individuals—often referred to as the “DIY” segment—wish to handle the whole process themselves. How do they go about planning for their retirement? Leveraging self-directed planning tools such as robo-advisers.
The next advice model is “hybrid advice,” a newer engagement between the adviser and client where advice and decisions can be initiated by either role and validated by the other party. Oftentimes, this segment is referred to as “validators.” We will see a vast majority of client/adviser interactions in the future within this advice model—especially as demographics continue to shift and other influences drive more advisers and clients toward this model.
Four Trends Pushing Toward a Hybrid Advice Model
Four trends are pushing the profession into the direction of hybrid advice, and the speed at which these forces are moving are only gaining momentum.
The first trend we know quite well: disruptive digital competition. Robo-advisers and other self-directed planning sites have truly disrupted the expectations of our consumers. Interestingly, robo-advisers have not even made a dent in where assets are managed, however they command the lion’s share of media attention, which is arguably why they are so disruptive.
The real reason why robo-advisers are so disruptive is because they are shifting the expectations of how our consumers wish to interact with us, specifically around the user experience. Gone are the days of “good enough” digital experiences; we must now compete with competition that rely solely on how users interact with their technology.
The second trend is regulatory upheaval. As an employee of a global company, we are dealing with numerous global regulations like retail distribution review (Great Britain), CRM2 (Canada), and the DOL fiduciary standards (United States). Each of these regulations have varying degrees of expectations but all focus on how firms engage with consumers. The obvious reason why technology will help mitigate the risk from these regulations is around providing consistent fiduciary advice—following specific pre-determined compliance workflows and leveraging the same calculation engine. The less-obvious advantage of leveraging technology in light of these regulations is the reduction in cost. Simply put, advisers can reach more clients and become far more efficient in delivering advice to consumers which ultimately reduces costs. At the firm level, costs are reduced through workflow efficiencies and other cost-reduction strategies.
The third trend is shifting consumer expectations. As mentioned, robo-advisers are impacting how consumers wish to engage and experience advice. This consumer expectation shift is not just coming from robo-advisers; our world is continuing to digitize and digital experiences are evolving rapidly. Social media, retail banking channels, web sites, and artificial intelligence/machine learning are all shaping the way consumers expect to interact. This trend will continue to pressure the planning profession toward improving the digital experience for the client.
The final trend is relatively obvious: shifting demographics. As Generation X and millennials continue to move toward the “retirement saving mindset,” we will see a shift in expectations as well. This will be interesting, of course, as demographic expectations will create additional pressure—some advisers will be forced to make changes to satisfy younger clients, especially those who might be inheriting wealth through the upcoming generational wealth transfer.
Where Will Hybrid Advice Take Us?
Hybrid advice is really the next logical step in our profession. Advisers will need to evolve to meet consumer expectations, but also to meet the pressures of regulation, technological competition, and demographic shifts. This makes sense. In the future, we always thought we would be interacting with our peers online—far more often than face to face—and hybrid advice is merely a rung on the ladder toward this destination.
Finally, as I alluded to before, hybrid advice will blur the roles in the client/adviser relationship. We can anticipate that many of our clients will want to control more of the retirement planning process, making educated decisions on how to manage their wealth, but still reaching out to get the validation they need to make the harder decisions. Advisers, too, will seek validation when they provide planning suggestions, this time through digital channels not thought of before.
What will hybrid advice look like? We will see robo-advisers that have advisers taking control of accounts to make discussed changes; we will see video chat interactions while the adviser and client are reviewing a plan online; we will see the plan approval process take shape to further include the client in the process, even to the point where the plan requires client involvement much more actively.
Hybrid advice is coming, and it will take different shapes as time progresses, but rest assured, the advice model is changing.