More personal & profitable with the help of technology

Dylan Verreynne, Head of Business Development, Wealthbit, GCI

Used smartly, advanced technology can solve several challenges for financial advisors and deliver a significantly better client experience.

Humans seem to be perpetually attracted to the scary delights of an impending apocalypse: Imminent extinction! Climate disaster! And, the perennial favourite, The robots are coming to get your job. Of course, there is some truth behind all the hype, but technology offers more upside than downside when it comes to financial advice.

First off, it’s important to distinguish between what we might call a robo-advisor on the one hand and a virtual financial advisor on the other. The former is a totally automated bot powered by sophisticated algorithms drawing on vast amounts of data and powerful artificial intelligence. There is no human involvement. Like any computer program, it is wholly dependent on the quality of the data it accesses – garbage in, garbage out – and, even more important, the quality of the code. The so-called “intelligence” of these things is entirely reliant on what they are hardwired to do.

Not like a human at all! Unsurprisingly, adoption rates of robo-advisors have been slow.

At the other end of the spectrum, what I’m calling a virtual financial advisor has much more potential because it combines the best of what a human financial advisor can offer with the best of what technology can offer. I’m talking about a very carefully designed program that allows advisors to service their clients more quickly and efficiently and thus empowers those clients significantly by providing them with autonomy over their financial plan. Think of a website or app into which the client’s financial and other information can be inputted, enabling various scenarios to be tested.

Human financial advisors who use these virtual “colleagues” well can expect the following benefits:

Better client service. Rapid digitalisation, greatly accelerated by the COVID lockdowns, has heightened client expectations across all sectors. These days, clients expect an Amazon-like service everywhere, which means instant access and highly personalised regular contact.

Technology will enable an advisor to meet with clients more easily and frequently, thus fulfilling these expectations. It also allows clients to access their financial information at the click of a mouse and test various scenarios independently. For example, “If I save an extra R1 000 a month, what would the effect be?” “Or if I change my risk profile?” This kind of access significantly increases clients’ engagement with their financial plans and thus leads to greater satisfaction in the end.

Greater profitability. Along with heightened expectations, though, a greater willingness to use technology will open up new client universes, potentially unshackling a financial advisor from his or her geographical location. Technology will allow an advisor to locate and service more clients and do so more profitably. This is because it removes much of the mundane, manual work involved in servicing clients, automating it for greater accuracy and ease of use.

This is significant given that providing financial advice is so unprofitable because it traditionally requires so much input from the advisor. For example, KPMG research shows that, in Australia, the cost of providing advice is AUS$5 335 per client as compared with the fee charged of AUS$3 660.

Another potential benefit is that advisors can realistically hope to gain a greater share of each client’s wallet by providing better, more comprehensive service. In reality, advisors seldom manage all their clients’ assets. According to one study, financial advisors manage only 39.45% of their clients’ assets – a significant opportunity.

Greater scalability. It’s all very well to gain more clients, but your typical independent advisor has severely limited capacity. A virtual “colleague” can provide the necessary ability to scale without incurring fixed costs.

Greater accuracy. Automation lies at the heart of the virtual financial advisor’s value proposition. The elimination of unnecessary manual processing, particularly the inputting of data, means that data quality and accuracy are greatly enhanced. Do I need to spell out the need for accuracy when it comes to financial advice?

In conclusion, one could argue that the hybrid approach is the winning one in line with much of what’s happening in digitalisation today. That’s certainly true when it comes to giving financial advice. Human plus the right technology equals winning team.