5 ways digital and hybrid advice can help wealth management firms better serve investors

January 10, 2023


Globally recognised expert in applied decision science, behavioural finance, and financial wellbeing, as well as a specialist in both the theory and practice of risk profiling. He started the banking world’s first behavioural finance team as Head of Behavioural-Quant Finance at Barclays, which he built and led for a decade from 2006.

5 ways digital and hybrid advice can help wealth management firms better serve investors

Firms who harness evolving technology most effectively unlock the ability to serve more investors, more consistently, and more personally.

There is a tiresome debate which represents institutions as struggling with a binary choice between digital and adviser-led advice. In reality, all advisory firms operate on a spectrum, with each increasing their deployment of digital solutions to make their advisers better placed to serve investors, as well as more cost-effective.

The current ‘digital transformation’ in wealth management is more evolution than revolution. From digital CRMs, to increasingly sophisticated and automated reports, to client portals and Zoom calls, just about every upgrade in financial advice has been made possible by better tech. Advice has been ‘hybrid’ for a very long time. Making the most of ‘hybrid’ opportunities isn’t about crudely adding more tech to the stack; it’s about thoughtfully differentiating between what humans and computers do best and acting accordingly.

At the same time, there is a vast group of investors who are not currently served by even the broadest mass market provider. With increasing labour costs and compression in investor fees this number only looks set to grow. In addition, those who are ignored for economic reasons are often, but not always younger investors who prefer digital-only environments. Here our clients who provide broad banking services either digital only or digital/branch are well positioned to convert their clients to a digital investing proposition. Especially as they can sidestep the client acquisition costs that so bedevil digital-only start-ups.

Another major trend our clients talk to us about is a paradox: investors are looking for personalised advice in a market where product and performance are rapidly commodifying, and the adviser’s understanding of their clients is becoming increasingly reliant on non-face-to-face methods.

Whichever channel an investor chooses – whatever the balance of ‘hybrid’ – all struggle to get a consistent understanding of the investor; something which costs on average 300bps per year in performance.

The biggest opportunity for providers – be they a wealth manager, a bank, a building society, or another advisory institution – is leveraging tech to gain a deeper understanding of each individual investor’s psychological make-up. This enables firms to offer personalised advice at scale, enrich adviser-client relationships, and improve behavioural-based investment interventions.

There are a ton of opportunities for firms embracing the latest digital upgrades to their advisory processes. Here are five of the best.

1. Consistent, well-evidenced advice

Many regulatory headaches come not from a lack of suitability but a lack of being able to evidence suitability. Is a firm’s process reliable, robust, and repeatable? To what extent does it rely on human judgement? Given the same set of circumstances, can different advisers within a firm (or the same adviser at different times) be trusted to provide broadly similar advice?

Our research into ‘noise’ in financial advice suggests that even experienced advisers have blind spots.  

One excellent example of allowing humans to focus on what they are good at and using tech for the rest is algorithmic assessment of a client’s risk tolerance, risk capacity, financial personality, and knowledge and experience. This provides an automatic digital audit trail that evidences the consistent application of a given process, as well as reducing the risk of subjective human bias creeping in where it is not welcome. This is especially true in assessment of investor behaviours, where the risk of unwelcome subjective variation is particularly high. This is also an area specifically targeted by the new Consumer Duty regulations, which clearly state the need to understand investor behaviours and evidence that understanding (as we look at in more detail here).

2. Scale up without losing touch

Perhaps the most obvious benefit of digitising aspects of an advice process is the opportunity to serve more clients, or serve existing clients better.

The inherent danger of serving more clients is that you serve each one a little bit more poorly, because you understand each one a little bit less well. Yet this needn’t be the case. If the adoption of new tech is focused on understanding investors, there are several ways in which improvements in client experience can go hand-in-hand with expanding client numbers, for example:

  • New service levels – The more tasks that are performed (and performed more efficiently) by tech, means the more time advisers have to serve additional clients, perhaps offering entirely new service levels which were previously prohibitively expensive.
  • Personalisation at scale – Personalisation is pricey, but a digital helping hand can help move tasks down the payscale, or even automate them completely. For example, certain elements of a financial personality assessment can enable non-advisers to provide general, but tailored, guidance where previously full advisory qualifications would have been required, as in our banking example above.
  • Scaling up processes – An advice network, for example, can benefit from more effective management information, or more consistent and better evidenced administration.
  • Segmentation – For all advisers, some form of client segmentation is key to effective client service. Allowing technology to take on some of the processes will enable advisers to better understand their customer’s behaviourally, which we have evidence to suggest is a more effective use of an adviser’s time.

3. Demonstration of value

How much a client values their overall experience of investing is a function of so much more than the numbers in an annual report. The perceived quality of an investment journey in the eye of its beholder is determined as much, if not more, by investor management than investment management. The most engaging investor management interventions are those that speak to each investor as an individual human: that help them understand the unique recipe of behaviours that shape their investing experience, especially where they stand in relation to wider populations.

Great advisers have always known demonstrating value is based on an in-depth understanding of their client’s financial personality. This process takes time, and time is something many advisers no longer have.

This is a job tech is particularly well-suited to support, through digital financial personality assessments, and interpretations in light of the thousands upon thousands of other investors that have taken the same assessment. Tech offers a shortcut here, allowing advisers a more rigorous appraisal of their client’s personality that can be done in minutes, and shared across the organisation consistently and systematically.

4. Flexible tech

The best digital transformation journeys are choose your own adventure stories.

There’s no need for firms to rely on unwieldy and unstable one-size-fits-all tech stacks, where the menu is preselected for you by the vendor, forcing employees to circumvent inevitable weak spots with a series of inefficient workarounds to fit in with existing processes.

A fully modular, API-based, suite of tools such as Oxford Risk’s allow a company to easily embed new capabilities into existing methodologies and designs and links into a wider ecosystem of best-in-breed tech, both in-house and outsourced, that provide true differentiation.

Whatever a firm’s goals – e.g. the most robust suitability assessment, a more engaging prospecting process, or building an in-house behavioural lab for designing individually targeted interventions – the relevant APIs can be designed, implemented, tested, and rolled out as appropriate.

5. Competitive advantage

In a recent adviser survey conducted by Oxford Risk, three-quarters of advisers see helping their clients manage their emotions in making investment decisions as a key part of their role and one on which there is undoubtedly a growing regulatory expectation and requirement. However, better use of tech isn’t a direct competitive advantage. It means very little until it’s translated into a better investor experience delivered at a sustainably lower cost.

In the context of face-to-face financial advice, the key to everything is the quality of the adviser-client relationship. A lot is made of ‘freeing up adviser time’ away from admin and towards the jobs that only advisers can do. While this is certainly true, it’s easily overplayed.

The main adviser advantage is more about not diluting the quality of that relationship by driving a transactional wedge between an adviser and their client. It’s about the ratio of adviser-client interactions that can only be done between two humans (i.e. those involving empathy, experience, and so on) to those where a machine could prove an adequate substitute (such as filling in forms). Doing this better than the competition allows advisers to grow existing relationships faster and drive new referrals.

How tech is used is just as, or more, important than what it’s used for. Tech should support intuitive knowledge grounded in a human relationship, not replace it.

There are plenty of options for digital-advice platforms out there. They all tend to start and end with better tech for slicker processing of investor information. This is clearly valuable, but it’s a poor second to using tech to enable not only cost efficiencies, but a better understanding of investors as individuals, and a better means of leveraging that understanding towards targeted behavioural interventions throughout each investment journey.

Find out more about digital and hybrid advice transformation in your firm by clicking here to download our free guide now.

Download the digital and hybrid advice transformation guide now.

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