Is tech a double-edged sword for advisers?
As financial advisers navigate the complex regulatory landscape, technology offers a potential solution to enhance client engagement; but can excessive reliance on technology erode the personal touch that is essential for building client relationships?
Managing relationships is at the core of any financial advisory business and there are few more important ones than those that advisers develop with their clients. Strong relationships can improve client loyalty, increase lifetime value, and importantly, boost referrals.
As more advisers incorporate technology into their practices, are they at risk of alienating clients? Or can technology help them gain a competitive edge in an increasingly noisy world?
The financial advice market is currently grappling with several challenges. Rising regulatory obligations, such as Consumer Duty forces advisers to dedicate significant time and effort to administrative and reporting tasks to show regulators that they are delivering good outcomes for clients. This burdensome activity often leaves advisers with less time to strengthen existing client relationships and build new ones; processes that can both take time and multiple communication touch points.
“Meeting with clients and developing their strategies are the enjoyable parts of the job. The challenging, but important parts are the red tape that follows. Dealing with administrative tasks is time consuming and expensive. If we can streamline that process with technology, it is only going to benefit us and the client,” says Dominic Quibell, Chartered Financial Planner at Lifetime Wealth Management.
Dealing with administrative tasks is time consuming and expensive. If we can streamline that process with technology, it is only going to benefit us and the client
Smaller firms can be particularly vulnerable to the demands of Consumer Duty and it can be difficult for them to employ the same technological advances as bigger businesses due to prohibitive costs for small players.
While technology can help advisers as an essential time-saving tool to increase efficiency and improve client engagement; one study showed that it may also translate to more pressure on advisers and their clients.
According to research from wealth manager Investec Wealth & Investment (UK), a study with financial advisers and financial planners across the UK found that 81% of advisers said clients are more demanding because they want to make more use of technology and to have greater insight into their investments.
In a few short years, investors have faced post-Covid equity market volatility and economic uncertainty, which has included inflation figures not seen for a generation, a cost-of-living crisis that has squeezed nearly everyone, and major elections across the globe. It is no surprise that clients want the best possible service and advice when it comes to their money.
However, with this backdrop, there is a duality that advisers need to consider. When markets are uncertain, technology becomes even more important and when the world is uncertain, the human touch becomes more important.
“For us, technology is very important when markets are performing poorly. We have useful tools for things like cash flow modelling and doing reviews for clients, rather than purely focusing on fund performance last year compared to this year,” says Dominic.
The value of the human touch
While technology has its merits during volatile market and economic conditions, the personal touch should not be understated because tech, roboadvisers, and artificial intelligence cannot provide the emotional value that advisers do.
Simply put, technology can’t factor in emotions and it can’t empathise with clients, yet.
“It should be a combination of both. Relationships are going to be personal touch with a certain demographic, but the new clients are very used to virtual meetings and having access to apps to view what their investments are doing,” says Dominic.
But even as client comfort increases with technology such as video conferencing, advisers should still be proactive so that they stay on top of clients plans, upcoming milestones, and even how social or climate change issues may be changing how their view their investments. In these instances, it is the critical human touch that initiates these conversations and has the potential to make a difference in their lives.
The increased use of technology will help to engage with younger clients more, it will also be beneficial to clients with less funds under management
Targeting a younger generation
Where technology can really give advisers an edge against the competition is the opportunity to connect with and to capture a younger generation of clients.
Younger generations expect seamless adviser experience and they want to be able to access their investments online and on demand.
Dominic says that while the increased use of technology will help to engage with younger clients more, it will also be beneficial to clients with less funds under management.
“The regulatory bodies have made it more difficult for advice firms to look after these type of clients because of cost constraints,” says Dominic.
“However by encompassing technology to develop solutions will allow these clients to still benefit from an advice structure that would have not been available to them,” he says.
