‘Enormous’ opportunity for independent firms to reinvent themselves
How much more regulatory uncertainty can financial advisers withstand?
While it’s only natural to ask this question given how swiftly compliance burdens have accumulated over the years, the industry probably spends too much time laboring over it.
Indeed, we should resist the temptation to focus on regulatory uncertainty in abstract terms and instead concentrate on the motivating factors that led to the increase in regulations in the first place. This approach will allow us to both address the way in which advice will be delivered in the future and to find solutions that transcend many of the burdens that have been placed upon the industry.
For most, the DoL rule has come to define the shifting regulatory landscape. Whatever we think of the rule’s flaws — and in our opinion there are many — it is now sufficiently clear that it will proceed largely intact. We cannot ignore the fact that much of the catalyst driving the rule’s adoption lies in a convergence of mega trends that have buffeted the industry in recent years involving technology, demographics and consumer preferences.
Indeed, we should resist the temptation to focus on regulatory uncertainty in abstract terms and instead concentrate on the motivating factors that led to the increase in regulations in the first place.
And it is those factors — along with additional regulatory changes — that have converged to form a new era of financial advice, one which will be defined by a greater alignment of interests between all key stakeholders, including independent firms, advisers and their end clients.
In this new era, it will be the firms that have the biggest responsibility, tasked with reshaping the terms of engagement between financial advisers and their clients and breaking down the traditional barriers between these groups that have previously defined our space.
This won’t start with continued distractions about what it technically means to be a fiduciary. It will begin with progressive compensation models combined with breakthrough technologies that put the client experience first, thereby establishing a more transparent and personalized relationship for the client, the adviser and the affiliated firm.
This will serve as the cornerstone for why independent firms are less conflicted than the employee-based alternatives, which have competing lines of business that theoretically could compromise their priorities and behaviors, making it more difficult to serve clients objectively.
Ultimately, though, whether firms and advisers are successful will be based on their cumulative ability to deliver an advice-centric experience that transforms how advisers serve clients during every life stage.
Whether firms and advisers are successful will be based on their cumulative ability to deliver an advice-centric experience that transforms how advisers serve clients during every life stage.
Much like the contrast in the healthcare system between a technician who focuses on medications versus a clinician who diagnoses and delivers personalized solutions, the adviser of the future will be less about product sales and more about holistic financial planning rooted in a deep understanding of the client's life goals and unique circumstances.
Independent firms are also better positioned to deliver on this objective given that they are not trying to be the equivalent of a pharmaceutical manufacturer and a clinician at the same time.
The following are the top four features of firms that embrace the fact that the advice-centric experience is an idea whose time has arrived:
1) The embrace and integration of robo solutions. We live in an increasingly digitized world, where investors will demand a range of online solutions from their adviser, including 24-hour account access. But that just represents the bare minimum. In the near future, clients should be able to access routine planning and investment management support anywhere and anytime, just by logging into their account and tapping a few buttons.
Advisers should not view this as a threat to their business, but rather as a complement to the services they already provide and a key mechanism through which they can generate operating leverage.
2) Technology that accurately reads the emotional state of mind of clients. In regards to technology, digital planning and investment solutions that support the routine needs of retail investors will increasingly be classified as merely table stakes. Even more important, such technology solutions will also need to be capable of deciphering non-verbal cues in interactions involving retail investors.
This will encompass initial account opening procedures, including risk tolerance and discovery assessments, as well as other day to day functions. In particular, there is considerable promise in facial recognition and voice pattern recognition software.
Such technologies can provide firms and their advisers with a greater level of insight into what clients are feeling on an instinctual and emotional level when they check in via computer or remote device, through either a digital planning platform or in a remote meeting with a real life adviser.
3) A deeper level of engagement between advisers and clients. We also expect the adviser-client relationship to become more intimate, even as technology-enabled routine planning and advice support, combined with day to day asset management, continue to become more commoditized. In the future, advisers will be tasked with becoming financial life coaches, a role that requires a higher level of emotional intelligence.
So while advisers build added scale and enhanced service by adopting digital tools, they can take solace in the fact that such technologies are likely to enhance the importance of clients being able to work with a human adviser, whose duties increasingly require a special interpersonal touch.
4) More direct interactions between firms and retail investor clients. Until now, there has been minimal connectivity directly between firms and retail investor clients, with the latter interacting almost exclusively with their advisers. Under this future ecosystem approach, firms will interface more frequently with retail investors, assuming a wider range of day-to-day tasks from the adviser, thereby liberating the adviser for more strategic relationship management services.
This new model, if implemented correctly, will significantly improve the client experience while extending adviser-client relationships.
Obviously, this current period of uncertainty has created many challenges. But it also represents an enormous opportunity to reinvent ourselves. We need to begin focusing on the creation of an advice-centric experience, one that reflects not only the very best of what firms and advisers partnering closely together can offer retail investors but sets the tone for achieving everyone’s collective best interests in the years to come.