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Ok. Got itIn the financial services sector the changes being brought about by the rapid pace of technological developments are immense and profoundly disruptive.
Technology is changing the expectations and experiences of consumers in every industry. In the financial services sector the changes being brought about by the rapid pace of technological developments are immense – and profoundly disruptive. A steady flow of young, innovative, technology-based competitors is forcing the established giants of the financial sector to reconsider the way they have always done business to stay competitive in an environment where access to financial products and services is easier, cheaper and more customisable than ever before.
Fortunately, with transformation comes opportunity. Advances in technology have made it possible for financial services companies to reach clients and markets that were previously out of reach due to logistical challenges.
In particular, the new generation of fintechs has capitalised on this potentially massive reserve of untapped revenue by catering directly to the needs of underserved clients, including those with low credit scores and unable to obtain loans in the traditional way, and small and medium businesses that have long struggled to access finance to meet their growth needs. In the process these fintechs are also providing more cost-effective and compelling alternatives to the conventional offerings of large corporate financial companies.
Both banking and investment management are evolving on the back of technological developments
Advances in mobile technology are playing a key role in enabling new financial services providers to leapfrog the challenges that have long plagued the sector due to underinvestment in physical transactional infrastructure. As a result, there has been a surge in mobile banking offerings that have made it possible for anyone to bank anywhere, at a fraction of the costs. Robotics and artificial
intelligence (AI) are an additional technological benefit for clients, as they have made it far easier for them to access the services they want, at an affordable price.
In investment management the availability of information, processing power and regulatory tightening have also had a significant impact. The approach and scope of investment research as well as the nature of the sell-side industry are changing, passive and low-cost asset management is growing (leading to fewer opportunities for active managers to deliver alpha), and the extent to which investment managers can provide advice is becoming critical. The benefits of technology used for investment platforms have driven down costs for investors and will increase choice in the years ahead.
The changes have raised concerns about the value of human skills and services
This wave of mobile banking offerings and technology-enabled services is inevitably changing the face of financial services for both providers and their clients. Branches are closing, employees are fearful of losing their jobs and intermediaries are questioning their role in the new world of banking, insurance and investment.
And on the clients' side, as it becomes easier to profile them using big data and algorithms and then present them with comprehensive, automated product or portfolio recommendations, the prospect of affordable, customised financial services for all becomes increasingly real. For example, so-called robo-advisory and robo-retirement services are now among the most rapidly growing offerings in the fintech sector.
This begs the question: will the rapid pace of fintech development and access eventually make human advice redundant? We believe the answer is no. It will, however, force financial advisors to transform and evolve in terms of the role they play in the lives of their clients. If advisors can do that effectively, the value they offer could increase exponentially in line with technological advances.
Humans and computers have different strengths, and the power lies in the combination
The truth is that humans and computers have different strengths and weaknesses. Even the creators of artificial chess-playing machines acknowledge that the best chess player is a team of human and machine. So, the key for financial advisors to remaining relevant, needed and in demand in an increasingly automated industry is to leverage their human capacities and play to their strengths.
Arguably the most valuable of these strengths is empathy. A human advisor can build relationships with clients, understand their current situations and needs and, most importantly, apply insight to ensure they can take full advantage of whatever the future brings.
So, while their electronic counterparts may have the artificial intelligence required to process massive amounts of data and come up with excellent product recommendations based on that data, it still requires a human touch to ensure a client feels heard, understood and cared for. People are complex and so are their relationships with each other and money. The need for financial experts who can guide, coach and use smart tools and resources to implement solutions and see to good client outcomes therefore remains critical.
Another way to illustrate this is to draw an analogy with a different industry. Let us assume all medical information is organised and available online, together with low-fee robo-doctors. Would competent GPs and healthcare specialists be out of business? No. But can the machine-enabled organisation, processing and use of medical information make better doctors? Yes.
The key for advisors is exploiting the benefits of technology to serve clients more efficiently
Technology undoubtedly provides abroader market with access to investment expertise and advice in a commercially sustainable way, compared with traditional people-based models of financial planning. Automated advice enables investors with smaller amounts, and those with relatively simple, single-need-type goals, to invest. Nevertheless, we don’t see robo-advisors replacing human advisors for those with more complex needs or the desire for a holistic, personalised financial planning service.
At its core, money is deeply personal. People's financial decisions reflect their values, aspirations and priorities. Yet most of us need guidance when faced with the complexity and range of banking, saving and investment options at our disposal. And because we are all unique, a purely data-driven recommendation, even if it is technically suitable for us, often will not be enough to fully meet our needs. Augmented advice (hybrid models), combining the best ideas and services delivered by humans with technology across many areas of the wealth management value chain, is extremely exciting for investors, the industry and the economy.