Robo-advisors — a disparaging term for online advice platforms that some advisors fear will soon be eating their lunch — have become a topic of much advisor soul-searching and teeth-gnashing.
U.S. firms like United Capital are at the forefront of wealth managers seeking to head off the threat.
But the trend has also caught the attention of the highly developed financial planning community in Australia, whose Financial Services Council recently presented its Deloitte Future Leaders Award to Bree McDonough for her paper The Digital Revolution of Wealth Management. The concerns she addresses will have a familiar ring to U.S.-based wealth managers.
That is because Future Advisor, Wealthfront and Betterment have become well-established in the U.S. In a recent ThinkAdvisor interview, United Capital’s Stephanie Bogan noted that Wealthfront has leaped from 0 to 10% of its clients being in the coveted over-50 demographic, demonstrating that online advice has become a genuine competitive threat.
“These startups,” writes McDonough in her paper, “are replacing the traditional face-to-face, fee-for-advice models and further fragmenting the advice and distribution bundling. They commonly offer online tools and personalized accounts, then charge a fee for more sophisticated automation and/or scaled advice from advisors with screen sharing and live chat.”
Imagine that: free advice, with the fee commencing for mere “sophisticated automation,” all a prelude to a live chat with an advisor.
At one point in her paper, McDonough teases us with a future customer experience “offering live-like interactions with financial advisors … through holography” and secure exchanges through “biometric electronic signatures.”
But the thrust of her paper focuses on today’s wealth management experience, and it is her contention that client expectations now exceed current service models.
“Growing beyond face-to-face service, paper processes and fee for advice models, customers now live in a social economy with real-time, anytime, anywhere expectations,” she writes.
For example, in Australia, like the U.S., the majority of people have a smartphone, and yet a minority of Australian businesses has mobile-optimized websites.
The implication is that wealth management firms must re-engineer their offerings across multiple channels lest they be relegated to the passé portion of a two-speed economy.
A poignant bit of data McDonough cites to emphasize this point is a comparison between Google searches for financial advisor with searches for do-it-yourself approaches. While financial advice searches in Australia a decade ago outnumbered the do-it-yourself searches tenfold, the former has steadily declined while the latter has steadily risen and now exceeds advice searches.
The Australian planner cites Delta Airlines as a global example of a successful transformation, from a firm that crawled out of bankruptcy and was voted one of the worst airlines in 2010 to a nimbler, digital-era firm voted best airline in 2012, sporting an iPad app and improved self-service kiosks targeting a more mobile population.
She also cites Australia’s Commonwealth Bank, which went from stodgy institution with low customer satisfaction to agile business with a series of digital milestones: 7,000 new transactions opened via Facebook, $800,000 secured through Twitter, and many others, since the start of its digital initiative.
Wealth management firms similarly should undertake initiatives in big data to uncover predictive patterns and identify new opportunities to serve customers. An industry known for its products’ complexity and lengthy interactions with clients could similarly look to Domino’s pizza tracker mobile app as a model for speeding things up.
A greater use of metrics that shift performance in a more client-oriented direction — such as building a firm’s stock of social media advocates — should further the digital transformation.
Social feedback processes are indeed a prime example of a contemporary environment that is cross-functional, horizontal and collaborative in comparison to wealth management’s traditional top-down business model.
In an age that permits investors to get “‘scaled-advice tools’ where customers can get advice online, anytime at a lower cost,” McDonough concludes that successful wealth managers are those who “re-engineer their businesses around today’s connected customer.”
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