The risk of not changing

The fear of disruption has become well entrenched in financial services and there are many discussion papers on robo-advice. The true disruption to wealth may, however, come from lack of change. In the US, tech savvy, adviser/bank distrusting Millennials are set to inherit more than $30 trillion from their Baby Boomer, often advised parents.

We face a similar situation in Australia, with Baby Boomers estimated to own more than half of Australia’s wealth (ABS, McCrindle 2016). If wealth firms are not already thinking about how to re-invent themselves to narrow the digital divide, they risk losing the next generation of client.

Both new and incumbent players are turning to technology to address this and other challenges, like increased regulation, but collectively, the industry has fallen short of real change. Instead, there’s a wider emphasis on delivering more tailored advice more efficiently.

In a report released last year, PwC noted, “Resistance to digital adoption among wealth managers, combined with a client base that does not feel a particularly strong affiliation to its current providers, is creating a sector that is acutely vulnerable to digital innovation from potential fintech incomers.”

The good news is that some wealth firms are adopting new technology services and streamlining business. They’re embracing technology to provide more personalised advice and transparency to consumers, and delivering the information online, near real time and using mobile apps. The issue is that many are only adopting change that is incremental and fails to address the holistic set of problems advice businesses face – now and for the future.

Drawing a parallel to what we saw in the entertainment industry with Netflix and other streaming services effectively taking down Blockbuster, you could say that the industry is at an inflection point. We can continue to invest in the traditional model of services and communication or create a new one.

If you look at the wealth management industry overall, you can start to see the boundaries shift and new opportunities created for businesses and consumers.

The rise of niche consumer directed “trend” based super funds like Spaceship is a great example of fintech incomers looking to tap into this paradigm shift.

What’s needed in the advice industry are innovations that improve access to financial advice and related services.

Shift towards investment management

Another opportunity we see evolving from the move from traditional advice delivery is for more financial advisers to offer investment management services. Many outsource the investment management of assets, and while it has its benefits – particularly the increase ease of compliance – it adds another layer of fees to the consumer and can dilute transparency.

The rise of SMSF, and the expectation of the Millennials is to see and know the assets they are invested in, is removing the opaqueness of the past. Other advisers may rely heavily on traditional wrap platforms using investment options or SMA products. These reduce the effort and paperwork involved in buying managed funds, beneficial ownership, distribution, holding and transaction data reporting.

However, they once again add to fees, legal ownership and near real time transparency.

Moving away from product-based platforms can save a lot of money in fees while still allowing advisers to easily deliver the same investments, including managed funds, within transparent model portfolios.

With more innovative solutions like this introduced to the industry, it’s easy to see the traditional advice delivery mechanisms and the role of the adviser shift – ideally stripping out even more costs and improving access to financial advice and related services for the Baby Boomers, their children and the next generations to come.

Shannon Bernasconi is managing director of Wealth02.