The evolution of financial advice

By Janice Roberts
CEO at Citadel Andrew-Moller

Andrew Möller, Chief Executive Officer at Citadel.

AUTHOR: Andrew Möller, Chief Executive Officer at Citadel.

Increased regulation has introduced more transparency to the world of financial services than ever before, creating heightened awareness of fees and relative investment returns. But with the rise of fintech and robo-advice, the question now arises: what value do financial and investment advisers offer, and how has their role changed and how can they now compete?

First, it’s important to note that there are essentially three key metrics by which to judge the value exchange between clients and advisers: service, pricing and performance. The mix of the three speaks to the quality of the adviser and investment solution.

However, changes in the regulatory environment and in the psyche of investors since the 2008 Global Financial Crisis (GFC) have brought the wealth management industry to a tipping point, irrevocably changing our understanding of these three metrics, as well as introducing a number of new factors by which to measure advisers’ value propositions.

Changes sparked by the 2008 financial crisis

Investors who entered the market in the wake of the dotcom bubble and preceding the 2008 crisis were fortunate enough to experience one of the five biggest bull-runs in the past 50 years, creating the expectation that markets would simply continue to rise.

However, the GFC saw a massive pullback in financial markets, awakening many investors to the realisation that there is an inherent risk in investing that they perhaps hadn’t fully appreciated. At the same time, regulators also realised that they needed to afford investors and consumers better protection from the cowboy-type behaviour that was prevalent in the financial services industry at the time.

The effect of this additional regulation has been the introduction of greater scrutiny and wider understanding of fee and return benchmarks, as well as increased professional competency requirements.

In terms of an adviser’s value proposition, the focus has also increasingly shifted to service, or the quality of advice that is offered. Advisers now need to compete on aspects such as their social skills, their understanding of behavioural finance, and their ability to build relationships with clients in order to understand their needs and help them fulfil their unique goals.

The importance of the human touch 

The recent regulatory drive has meant that advisers have been required to continuously upskill themselves in order to offer more holistic advice across all aspects of financial planning, be it investments, estate planning or tax.

However, rather than simply competing on skills, performance or fees, wealth management and financial advisory businesses are increasingly being judged by right brain metrics, or the human touch that fintech and robo-advice are simply unable to replace. And beyond that, there is a need for high-touch conversations that only people can provide.

Advisers have become something of a financial life-coach, walking beside clients through each of their life-changing moments and decisions, whether these be choosing where to send children to school, how best to support aging parents, or even deciding where to live. Simultaneously, advisers need to constantly keep an eye on the horizon, helping clients to mitigate any unforeseen risks, manage their debt burden before it becomes unmanageable, and assist them in strategising for the successful intergenerational transfer of their wealth.

Far from becoming defunct, advisers are in high demand in the current era of uncertainty and rising complexity in financial markets, in order to guide clients through the fog. And given the growing recognition that there are no universal “correct answers”, their ability to create tailored financial solutions to meet each individual’s specific needs has become increasingly important.

The future of financial advice

As opposed to simply sending quarterly reports, this in turn means that advisers are now required to offer clients the benefit of consistent communication, ensuring them peace of mind and comfort around the clock.

Effective businesses further need to engage and resonate with clients, competing on a whole range of new metrics such as philanthropy, responsible investing and sustainability.

Wealth managers are now able to help clients in giving greater purpose to their money by offering strategic guidance in selecting and supporting appropriate charities, non-governmental organisations and sustainable investments with the aim of accomplishing positive social, economic and even environmental change. While spontaneous and ad hoc charity is important, a more structured approach is necessary to create sustainable long-term change.

And while an increased regulatory burden is having the unfortunate effect of squeezing many smaller businesses out of the industry, this new playing field has simultaneously opened new opportunities for financial advisers to deepen their relationships with clients and strengthen brand loyalty. This is seen in the fact that many client-centric or service-driven businesses have continued to experience positive inflows in recent times, despite an economy under pressure and a volatile rand.

Furthermore, these inflows prove the point that even in times of uncertainty, businesses that are willing to engage and block out the noise for clients, and that are aligned with clients’ interests, will continue to thrive.

Ultimately, the impact of the recent regulatory drive has been to remind the industry that financial advice is nothing if not personal. And while performance and fees will always be vital, the value of financial advisors will never be in dispute as long as they remain focused on their key purpose: offering their clients real, dependable advice.

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