ºÝºÝߣ

ºÝºÝߣShare a Scribd company logo

Future_of_Financial_Advice

?
?
Avinash Kumar
Avinash Kumar

The document discusses how the financial advice market is changing to better serve millennials and future clients. Traditional advisory models are outdated and high-cost, servicing less than half of investible assets. The future of financial advice relies on gamification, social analytics, access consolidation, and value aggregation to better understand clients and their communities in order to provide customized, low-cost advice. Robo-advisors and blockchain also have the potential to disrupt financial advice by automating tasks, mining client data, and creating investment opportunities. Advisors' revenue models will move away from fees and commissions towards building their brand and value through personalized advice, accessible opportunities, and consistent client engagement.

1 of 3
Download to read offline
Future of Financial Advice The Financial Advice market has been growing annually at about 15% over the last five years, clocking close to $50 Trillion investible assets in US alone ¨C 60% of which being in retirement assets. However, just under half of this asset base is serviced by Financial Advisors owing to their archaic operating methods, legacy technologies, high cost of advice and conflict of interest. The capacity required to service the millennials lies in walking away from the signature crawl of the advisory market place epitomized in manual processes, interrogative profiling of the client and fee based model charged to assets under management. As the millennials leave umpteen digital footprint out there in the social media, their expectation is not be bothered with responding on their goals, risk profiles or life events. Signing reams of documents or even scanning and uploading KYC forms is a drag. They would rather expect a service provider to mine their financial needs and behavior and suggest an investment plan that benchmarks with their community. Nurturing such millennials in maintaining a consistent long term association with the advisor is becoming an integral part of financial advice, something that very few advisors are offering ¨C at least digitally. Finally, the advisor needs to aggregate various opportunities and access to the same, in rendering financial advice, and not just products or investment plans, marketed by it. The future of financial advice belongs to Gamification, Social Analytics, Access Consolidation and Value Aggregation. The changing landscape of advisor technologies The front office is getting replaced with Internet of Things (IoT). The middle office characterized by plethora of product driven applications is buckling to cost effective Fintech Solutions and most of the back office systems is moving to the cloud. Information, not money, is the new age currency. Opportunities are the new age products and Financial Advisors have an enviable opportunity to become the ¡°Bank¡±-of-the-future, as ? Custodians of client behaviors and social profiles ? Information Exchange, and ? Value / Access Aggregators Impact on financial advisory processes Financial Planning will no longer be driven by Investment Products, but co-designed and influenced by the community that the client relates to. Gamification will keep the client (and concurrent data) coming into the enterprise in place of standard questionnaires seeking investor risk profile and investment goals. Advisors will be motivated for innovating client experience. The old guard segmentation into mass affluent, high net worth or ultra-high net worth clients and prescribing respective investment products will be replaced with financial nurturing. Asset Democratization across client segments will ensure that some value from each Product or Solution is always accessible across client communities delivering greater financial inclusion. Finally, the Advisor is seen as an equal opportunity Access Facilitator and Value Aggregator. As Fintech Solutions replace conventional applications portfolio, there is greater degree of self healing and self- learning systems. As a result, most of the Operations time is now spent in mining and analyzing data related to clients, solutions, partners, pricing etc. than maintenance and upkeep of the IT systems.
Next Gen Levers of Financial Advice Gamification, Social Analytics and Soft Skills define the future of Financial Advice. Gamification will promise client engagement by adding a challenge, competition or feedback. The ¡°Game¡± keeps bringing back the client to the advisor, implicitly improves the investment quality and also facilitates non-intrusive collection of valuable data from the client. The game may either solicit a defined outcome, rewarding for compliant behavior (e.g. reporting certain transactions, using a mobile channel etc) and penalizing for errant behavior for uninitiated clients. It could also offer a choice of solutions encouraging creativity for more experienced clients. Social Analytics will mine gigs of data collected from the client and business partners. Machine learning in financial advice will innovate solutions for respective client profiles offering access to customized solutions, communities, and opportunities. Even as machines gain larger control of data churning, predictions, analytics and portfolio calibrations, advisors will need to upskill themselves as Data Scientists, UX designers and Behavioral Psychologists.
Are Robo-Advisors and Block chain relevant? The current breed of Robo Advisory platforms are simply automating some of the most cost inefficient functions like asset allocation and risk profiling. Further, the popular business model of adding scale and charging a fee for expanded assets under management itself is self-defeating in long run, as it ignores financial nurturing and planning for the client ¨C a task that should have been automated first. Already very similar predictions are made by a bunch of Robo-Advisory solutions, for a given investor profile, even as their appetite for risk, ability to service the investments and financial goals may have differed. Once the novelty dies out, only those platforms would survive that truly harness the technology to mine client behavior and influence investment planning, powered by custom user experience. Block chain does promise to be a significant disruptive force ¨C not only in asset allocation but also in mining the client and creating communities of interest. Block chain technology could identify potential opportunities for investors, based on near zero cost, almost instantaneous and confirmed transactions across ¡°nodes¡±. The Revenue Model Charging fee for assets under management or commissions as an intermediary would be history. The advisors will earn revenue by capitalizing the brand they build. The brand would be recognized for the value of advice perceived by the clients. Such value is a combination of ? Discovering investment goals through powerful analytics, at times not even visible to the client ? Identifying, aggregating and providing access to self-paying opportunities ? Ability to seek consistent participation from the client (e.g. through gamification) Excluding any of the above components from the ambit of financial advice will render an ineffective plan. For example, if relevant goals cannot be identified or achieved, the advice will only render a notional win. This may happen even if the investor is making contributions and the plans are generating returns. Either due to lack of liquidity, or inability to apply the returns to intended financial goals, the investor may not benefit from the advice. Similarly, if the goals are identified, and so are the opportunities, but the investor fails to keep up regular contribution, the goal would only remain a distant wish. In the event where the investor pays for its goals, but the money is not working for itself, the investor may see that as a poor advice. So long as the three are in tandem, the value of advice appreciates. So does the brand. Please send your comments to Avinash Kumar

More Related Content

Future_of_Financial_Advice

  • 1. Future of Financial Advice The Financial Advice market has been growing annually at about 15% over the last five years, clocking close to $50 Trillion investible assets in US alone ¨C 60% of which being in retirement assets. However, just under half of this asset base is serviced by Financial Advisors owing to their archaic operating methods, legacy technologies, high cost of advice and conflict of interest. The capacity required to service the millennials lies in walking away from the signature crawl of the advisory market place epitomized in manual processes, interrogative profiling of the client and fee based model charged to assets under management. As the millennials leave umpteen digital footprint out there in the social media, their expectation is not be bothered with responding on their goals, risk profiles or life events. Signing reams of documents or even scanning and uploading KYC forms is a drag. They would rather expect a service provider to mine their financial needs and behavior and suggest an investment plan that benchmarks with their community. Nurturing such millennials in maintaining a consistent long term association with the advisor is becoming an integral part of financial advice, something that very few advisors are offering ¨C at least digitally. Finally, the advisor needs to aggregate various opportunities and access to the same, in rendering financial advice, and not just products or investment plans, marketed by it. The future of financial advice belongs to Gamification, Social Analytics, Access Consolidation and Value Aggregation. The changing landscape of advisor technologies The front office is getting replaced with Internet of Things (IoT). The middle office characterized by plethora of product driven applications is buckling to cost effective Fintech Solutions and most of the back office systems is moving to the cloud. Information, not money, is the new age currency. Opportunities are the new age products and Financial Advisors have an enviable opportunity to become the ¡°Bank¡±-of-the-future, as ? Custodians of client behaviors and social profiles ? Information Exchange, and ? Value / Access Aggregators Impact on financial advisory processes Financial Planning will no longer be driven by Investment Products, but co-designed and influenced by the community that the client relates to. Gamification will keep the client (and concurrent data) coming into the enterprise in place of standard questionnaires seeking investor risk profile and investment goals. Advisors will be motivated for innovating client experience. The old guard segmentation into mass affluent, high net worth or ultra-high net worth clients and prescribing respective investment products will be replaced with financial nurturing. Asset Democratization across client segments will ensure that some value from each Product or Solution is always accessible across client communities delivering greater financial inclusion. Finally, the Advisor is seen as an equal opportunity Access Facilitator and Value Aggregator. As Fintech Solutions replace conventional applications portfolio, there is greater degree of self healing and self- learning systems. As a result, most of the Operations time is now spent in mining and analyzing data related to clients, solutions, partners, pricing etc. than maintenance and upkeep of the IT systems.
  • 2. Next Gen Levers of Financial Advice Gamification, Social Analytics and Soft Skills define the future of Financial Advice. Gamification will promise client engagement by adding a challenge, competition or feedback. The ¡°Game¡± keeps bringing back the client to the advisor, implicitly improves the investment quality and also facilitates non-intrusive collection of valuable data from the client. The game may either solicit a defined outcome, rewarding for compliant behavior (e.g. reporting certain transactions, using a mobile channel etc) and penalizing for errant behavior for uninitiated clients. It could also offer a choice of solutions encouraging creativity for more experienced clients. Social Analytics will mine gigs of data collected from the client and business partners. Machine learning in financial advice will innovate solutions for respective client profiles offering access to customized solutions, communities, and opportunities. Even as machines gain larger control of data churning, predictions, analytics and portfolio calibrations, advisors will need to upskill themselves as Data Scientists, UX designers and Behavioral Psychologists.
  • 3. Are Robo-Advisors and Block chain relevant? The current breed of Robo Advisory platforms are simply automating some of the most cost inefficient functions like asset allocation and risk profiling. Further, the popular business model of adding scale and charging a fee for expanded assets under management itself is self-defeating in long run, as it ignores financial nurturing and planning for the client ¨C a task that should have been automated first. Already very similar predictions are made by a bunch of Robo-Advisory solutions, for a given investor profile, even as their appetite for risk, ability to service the investments and financial goals may have differed. Once the novelty dies out, only those platforms would survive that truly harness the technology to mine client behavior and influence investment planning, powered by custom user experience. Block chain does promise to be a significant disruptive force ¨C not only in asset allocation but also in mining the client and creating communities of interest. Block chain technology could identify potential opportunities for investors, based on near zero cost, almost instantaneous and confirmed transactions across ¡°nodes¡±. The Revenue Model Charging fee for assets under management or commissions as an intermediary would be history. The advisors will earn revenue by capitalizing the brand they build. The brand would be recognized for the value of advice perceived by the clients. Such value is a combination of ? Discovering investment goals through powerful analytics, at times not even visible to the client ? Identifying, aggregating and providing access to self-paying opportunities ? Ability to seek consistent participation from the client (e.g. through gamification) Excluding any of the above components from the ambit of financial advice will render an ineffective plan. For example, if relevant goals cannot be identified or achieved, the advice will only render a notional win. This may happen even if the investor is making contributions and the plans are generating returns. Either due to lack of liquidity, or inability to apply the returns to intended financial goals, the investor may not benefit from the advice. Similarly, if the goals are identified, and so are the opportunities, but the investor fails to keep up regular contribution, the goal would only remain a distant wish. In the event where the investor pays for its goals, but the money is not working for itself, the investor may see that as a poor advice. So long as the three are in tandem, the value of advice appreciates. So does the brand. Please send your comments to Avinash Kumar