The Rise of the Digital Adviser

Banks and wealth management firms around the world are building their expertise and execution in Digital/Hybrid Advice - a new service model set to attract new clients and reap significant cost efficiencies in the delivery of financial advice.

Today, consumers are more than comfortable with Digital Banking, FaceTime, and Zoom calls, so the small leap in using Digital/Hybrid Advice from within the comfort of their home is no far-fetched plot.

New Digital/Hybrid Advice tech platforms allow wealth institutions to provide an affordable, highly personalised, and superior value proposition of financial advice, one that can be specially designed for the "mass affluent" consumer with assets between $100,000 and $1 million, who have been traditionally difficult to service due to the high cost.

These models are yet to be capitalised in Australia and the UK, yet they are set to be a profitable core growth segment within a financial service provider's business over the next 2-5 years. McKinsey has estimated that approximately 42 million households worldwide, representing $66 billion in annual revenues across banking, borrowing, and investing, are prime candidates for "digital advice”.

Also according to McKinsey, in the US, 40 to 45 percent of mass affluent consumers switched their wealth management firm to a direct, digital-led firm over the last 24 months, and in many cases, also chose to work with a phone-based adviser. Over 30 percent of clients in Northern Europe and parts of Asia subscribe to Hybrid Advice, where digital usage is more advanced.

Consumers are simply choosing online and mobile channels to attain wealth services for convenience, and are happy to contact a human virtually if their needs become more complex.

In the Australian and UK markets, the distribution of advice looks very much the same today as it did 20 years ago, although advisers are using digital tools to be more productive, however, the current model is still designed around an output and a network that has existed for decades.

Yet we've seen the successful adoption of Digital/Hybrid Advice in mature markets like Europe, Asia, and the US, deployed by banks and wealth managers like ABN AMRO, Santander, Fidelity, Charles Schwab, Vanguard, Personal Capaital, and ChinaTrust’s “Air Financial Adviser".

More headway is needed in Australia and the UK as we have three key trends driving the need for Digital/Hybrid Advice:

1. Critical Mass - there's an extreme demand for financial advice and a lack of distribution across the mass affluent. Data also shows that HNW individuals also want access to better digital wealth tools. The growing rate of demand for financial advice cannot be met by the current financial advice distribution channels.

2. Digital Technologies - technological capabilities are advancing the mainstream. Virtual meetings & chat technology, AI & machine learning, and the level of computation power around financial modelling are key factors.

3. Regulation - regulators are turning their political focus toward solving the accessibility and affordability of advice for mass consumers, especially with a retiring population.

There is an opportunity to rapidly build Digital/Hybrid Advice capability within your advice business, the shift is happening.

If you want to future-proof your advice business or introduce Digital/Hybrid Advice as a new service model within your institution, DM Jacqui to discuss your needs.