The financial advice sector is sometimes perceived as a laggard when it comes to digitalisation, with an attachment to traditional ways of working. When these methods were disrupted by the pandemic, the industry’s technological capabilities were put to the test.
While the average financial advice or wealth management client may not directly encounter digital processes, technology already played an essential role in the back-end operations of many firms and is reshaping business models.
“We are a face-to-face firm and that will continue to be the way we engage and support our customers,” says Richard Houghton, chief financial officer at Openwork, the financial advice network. However, “digital back-up, servicing and customer access” are becoming a basic requirement.
The speed of digital transformation in financial advice is accelerating. While responsibility for leading this change sometimes lies with the IT department, the chief financial officer takes a wider view, weighing up the costs versus the benefits of investing in digital.
“It is increasingly difficult to achieve economies of scale without digitisation,” says Mark Satchel, chief financial officer at wealth management firm Quilter. “It’s a necessity, not a luxury, and something that all advisory firms need to embrace to a greater or lesser extent.”
Business scalability is much sought after in an industry characterised by high costs and often thin profit margins, and digital capabilities can help firms to achieve scale. However, it is rarely cost-effective for smaller firms to invest in the level of automation they need.
According to Nick Stebbing, chief operating officer at Saltus Investment Managers, parts of the industry — including platforms, discretionary fund managers and some advice firms — have fallen into the trap of investing in front-end interfaces without first getting the broader infrastructure right. It is better to invest in systems that improve efficiency without needing manual intervention, he says.
“Clients still value the one-to-one conversation with the adviser, whether online or face-to-face,” says Mr Stebbing. “But there are areas where digital can improve the overall client experience, such as electronic signatures.”
Digitalisation also makes it easier for firms to meet regulatory demands, such as record-keeping, cyber security and data compliance. “It is just too hard to do all this without a digital system-based infrastructure,” says Mr Houghton. “The days of running a practice from filing cabinets in the garage are gone.”
The shift to using front-end digital services with clients has been slow, with a widely held perception in the sector that clients are not interested in using technology to interact, but the pandemic has challenged this thinking.
“Sometimes people assume that older customers will be reluctant to use technology, but I don’t think that’s a real reflection of where people are,” says Mr Stebbing. “Until recently there was an unspoken consensus that phone or Zoom meetings with clients didn’t work, but now we know that they do, for existing relationships and for new business.”
It is a reminder too of the extent to which successful digital transformation is shaped by customer expectations and predictions of how these will evolve.
“Customers have changed behaviours,” says Mr Houghton. “Their demands are greater and our service model has changed rapidly.”
Openwork was already deep into a major systems overhaul, but the pandemic “reinforced the need to execute it at best speed,” he says. The company has recruited about 20 graduates to introduce new digital functions to advice firms.
It frequently falls to chief financial officers to set out what digitalisation entails and strike a balance between modernising overall service without compromising client satisfaction. Without that direction, it risks being driven by marketing, IT or financial priorities, with no agreed strategy across the organisation.
“The CFO needs to be looking at the cost base and the ways in which the business can be managed more efficiently, and digitisation is one of the enablers,” says Mr Satchel.
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“Some of the investments we make in digital are smaller, incremental changes that bring positive short-term returns, but we’re in the business of servicing clients for long periods of their lifetimes and we need a long-term outlook.”
If digital enables the sector to cost-effectively serve what is loosely termed the mass market, he says, this will make financial advice more accessible and affordable.
It will also help firms to serve the growing number of people engaging with digital channels, says Charlotte Crosswell, chief executive at Innovate Finance, a non-profit body representing the financial technology industry.
“More individuals than ever before are now using mobile apps to open bank accounts and access banking services. Even once the pandemic subsides, we can expect this shift in consumer behaviour to continue, as a greater number become more comfortable accessing advice online.”
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