DAVID HAINTZ was one of the prime movers behind the growth of Shadforth Financial Group — one of Australia's most successful financial advice businesses. Disruption in financial advice he says, has only just begun, but it presents huge opportunities for firms with the right strategy in place.
For financial advisers, the combination of forces shaking the foundations of our industry can feel like disruption. For consumers, however, it appears more as empowerment. Between those contrasting perceptions lies opportunity.
The job of reframing the multiple challenges that wealth management faces, not only in Australia but around the world, was laid out forcefully recently at presentations by Sterling Shea, Global Head of Wealth and Asset Management at Dow Jones.
Rapid technological change, the commodification of investment management services, the increasing costs of compliance and public mistrust of the wealth management sector — Shea's roll call of pressures on the advice sector was a depressingly familiar one.
Margins are under pressure, the workforce is shrinking and ageing, and those long-established firms whose proposition is geared around investment management only are struggling to survive what looks like a perfect storm.
But framed another way, there is also significant opportunity in this disruption — opportunity that reveals itself if you reflect on the significant value that highly personalised financial advice can bring when tethered to digital technology.
To be sure, we have seen the impact of technological disruption across a range of industries for the past 25 years. In retail, Amazon has cut a swathe through established players; in the taxi industry Uber has been the disrupter; in hotels it has been Airbnb; in recorded music it has come through Apple and Spotify, and in video through streaming providers like Netflix.
Advice is now said to be confronting its own disrupter in new algorithmic-based robo-advice solutions that empower the consumer and cut the cost of advice.
Technology is not the real disrupter
But Shea, echoing a message I have been emphasising now for several years, says this is less about technology but about consumer empowerment as former institutional rigidities, misplaced incentives and opaque pricing are swept away.
"Technology by itself is not the real disrupter. Being non-client-centric is the biggest threat to any business," he says, pointing to a marketplace that is becoming more cost-conscious, more tech savvy and more risk averse.
To an extent, this was always going to happen to the advice sector. All the technology has done is to accelerate the process and concentrate minds in a short space of time.
As clients wake up to how much they are paying and what they are paying for, they tend to question everything: service, charges, performance and value. If there is someone out there who can do it better and cheaper, they will shift. For many, the ultimate choice will not be between one human adviser and another but between a human and an algorithm.
Time for a new value proposition
How do you fight this? In my view, it starts with switching your firm value proposition from offering commodified "below-the-line" services such as investment products and asset allocation to helping clients build the lives they want to live.
As Shea puts it, if wealth management is to make the necessary transition, client conversations must shift from short-term market movements to investors' life events and their progress to long-term goals. Instead of clients making a binary choice between humans and technology, both should be integrated in a single offering.
Putting clients at the centre of a holistic process also can help overcome one of the other great challenges cited by Shea — the suspicion many consumers feel toward the financial services industry, a distrust that has deepened since the GFC.
Offering static and transactional services does nothing to overcome this suspicion. In contrast, a focus on the dynamic, holistic services that evolve with the clients' needs, that offer transparent pricing and that measure success in the long-term can restore trust.
Successful advisers will wear several hats
My own characterisation of this shift is 'life-first' advice. Discussions will start with clients' broad life needs, values and goals before moving to financial solutions. While the role of financial adviser will remain pivotal, the successful advisers will also wear other hats as mentors, coaches, project managers and catalysts for change.
While some advisers will recoil from this suggested broadening and deepening of their roles, it really does make sense from the perspective of clients who, after all, do not erect an arbitrary wall between their material and non-material needs.
My sense is that this dynamic approach maximises the opportunity to redefine the wealth management sector and to use the current disruption to build a new profession that helps clients and enables advisers to build strong and sustainable businesses.
Of course, this big picture transition will not occur without firms making the hundreds of operational adjustments to enable it. That means building a strategic plan with measurable targets, reinvigorating culture and leadership, and investing in the digital experience.
The latter imperative is particularly critical. Many advice firms are employing a scatter-gun approach to technology, adopting multiple, often incompatible systems and losing sight of what they are trying to achieve strategically.
Every client touch point should reinforce your value proposition
So, a centralised and fully integrated CRM system is a good starting point, as is a methodical and measurable digital marketing and communication plan. In technology, the emphasis needs to be first on building efficiencies and scalability throughout the business and second on ensuring that every client touch point succeeds in reinforcing your value proposition, and outcomes of that value proposition to your prospects and clients.
We have seen that many of the challenges our industry is facing in Australia are being replicated in other economies. The pressures, if anything, are intensifying. According to Shea, the rate of change in recent years is the slowest it will be for the next 10-20 years! I agree with him.
Overcoming this challenge will require belief in the value of your service. But it will also require investment in systems and staff and a vision for a "life-first" premium and customisable wealth management business that no algorithm can replace. On the other side of disruption lies opportunity.
DAVID HAINTZ is a CFP and founder of Global Adviser Alpha – a B2B consultancy helping leading global advice businesses become world class and achieve outstanding result for all stakeholders.