Ignore innovation at your own peril: Here’s what’s on the cards for 2022

You don’t have to have deep pockets to invest wisely, and that’s as true for financial advisers as it is for their clients.

The pandemic might have accelerated or altered the trajectory of some of the biggest trends in financial services, but it hasn’t diminished the importance of understanding them. That’s just as true now as it was before COVID-19.

If anything, the ability to map and navigate the latest innovations in the financial advice sector is more urgent than ever before. Like many industries, the past 18 months have had a profound impact on how financial advisers live and work.

However, it’s not all bad news. Even if wider economic activity has slowed, that pause has given savvy operators the chance to reconfigure, revise and recalibrate their approach to innovation.

As the world moves on, financial advisers who identify and position themselves to take advantage of trends ahead of time, rather than chase them after the fact, are most likely to succeed where others fail and find firm footing in the new normal.

If you know what’s coming, you know how to make the most of it.

Goodbye, software as a service. Hello, software with a service

“There’s no doubt that the pandemic has really been an opportunity for many advisory businesses to stop and consider their key value proposition to clients,” Integrated Portfolio Solutions CRO Mark Papendieck said.

Speaking specifically, Mr Papendieck noted that one of the biggest outcomes of this reflection has been a growing pushback against the growing dominance of software as a service (SaaS) providers.

The conditions of the pandemic did little to deter the marketing departments of SaaS providers from filling financial advisers’ inboxes with offers, opportunities and promises that the rewards of innovation could be had at the cost of an elegant and monthly subscription fee.

“While everyone is constantly being bombarded with providers who offer a SaaS solution, what we have really noticed is that advisers are telling us that they actually want software with a service,” he said.

As much value and efficiency as SaaS has brought to the financial services industry writ large, having to rely on such solutions during the pandemic has put their shortcomings into stark relief.

Mr Papendieck argued that the concept of software with a service allows financial advisers to reimagine what their business could look like, rather than just settle for putting a band-aid over the band-aid solutions of the past.

“Sometimes, the simplicity and purity of past concepts is too quickly dismissed, when in fact the opportunity that technology presents is to unwind the complexities that we created in the absence of technology,” he said.

Mr Papendieck suggested that this trend represents an opportunity for the financial advice sector to recognise and examine the fundamental humanity at the heart of the industry.

“Every client is different, but so is every wealth management business,” he said.

Taking the best, leaving the rest

“The good parts of being forced to interact remotely with clients and suppliers — such as tools for remote communication and rapid decision-making, are here to stay,” Mr Papendieck said.

However, he’s quick to flesh out that forecast with a few caveats.

The big shifts in daily life during the pandemic have cast new light on old ideas, prompting financial advice businesses to reconsider how they think about staffing.

“Not being in the office every day has created the space to consider whether having an admin team that is larger than the advisory team is consistent with the DNA of their business,” Mr Papendieck said.

According to him, it’s also created an opportunity to have more meaningful conversations about the role of technology when it comes to rebalancing the business.

It’s not just about having as much tech as possible, it’s not just about having the right tech in place, but finding solutions that reflect the business’s fundamental value proposition to clients.

Mr Papendieck said that these wider conversations around the role of technology and innovation in the finance advice sector are being driven by the reality that more and more private client-style businesses are opting to use alternative investment products within their client portfolios.

“Because it’s hard for traditional platforms to cater for these types of assets, we are seeing a lot of private client businesses looking for a technology solution to incorporate these assets into their portfolio administration and reporting process,” he explained.

Despite an uptick in the volume of the conversation around innovation, Mr Papendieck said that the very concept of innovation in financial services is often misunderstood — even by advocates.

“We need to stop using it as a clichéd buzzword and instead understand that it’s a mindset — a way of thinking beyond the present to the future,” he said.

Mr Papendieck warned that some financial advisers see innovation as something they need to be thinking about 24/7.

In doing so, he said they often overlook the downsides of relentless trailblazing. Not all innovation is exciting and radical.

Sometimes, the most meaningful and significant ones are as simple as taking the opportunity to do things better tomorrow than we do them today.

“Rather than thinking about the future as a linear progression of today’s processes, tools and products, it will be those investment advisory businesses that don’t use the status quo as their starting point for what is possible that will thrive,” he said.

The pent-up demand of the pandemic has to go somewhere

At a high level, Fintech Australia CEO Rebecca Schot-Guppy doesn’t think the pandemic has fundamentally changed the landscape for trends and innovation in financial services. It’s just pushed the timeline back a little.

Prior to the pandemic, the wealth sector was rife with bold warnings of the transformative impact that the arrival of digital advisers would bring to the financial services industry.

During the pandemic, these prophecies largely failed to fulfill themselves.

Although the predicted uptake in digital advice has yet to occur, Ms Schot-Guppy insisted that this doesn’t mean it isn’t still on the cards. According to her, the pandemic just wasn’t the right time for it.

“I think we are going to see an increase as people become more financially literate,” she said.

A report published by the Fundamental Group found that one in three Australians was taking a more active interest in their finances relative to the time before the pandemic.

Meanwhile, the Commonwealth Bank’s latest Australian Consumer Financial Wellbeing report noted significant improvement in the financial outcomes of Australians over the 12-month period ended March 2021.

“While clearly there are people struggling or worse off from the pandemic, more Australians feel better off, more financially secure and more in control of their finances,” CBA executive manager for financial wellbeing Ben Grauer said.

Some industry figures anticipate that these two trends — consumers developing both an interest in and the means to begin or optimise their wealth creation — will drive both innovation and the demand for it within the sector.

More customers typically translates into more reasons to compete when it comes to tech and innovation, after all.

Ms Schot-Guppy said that the launch of the Consumer Data Right (CDR) regulatory regime, which promises to allow financial advisers access to a full picture of someone’s financial health, would be another major driver of future growth and innovation in the sector.

“I think there is an opportunity for that space to really grow over the next few years,” she said.

More broadly, she noted that the digital banking and payments space had exploded during the pandemic.

Over time and combined with the larger trend around Australian consumers taking control of their finances, she expects that growth to drive an increase in consumers seeking financial advice.

Ultimately, the need for financial advisers to stay on top of innovation in the industry — and the surrounding trends — has never been more pressing than it will be in 2022.

A perfect storm of pent-up demand isn’t a matter of if — it’s a matter of when, and only those who can leverage their knowledge of why the industry is moving and changing the way it is will be able to capitalise on it rather than merely react to it.