Fintech should empower advisers, not overpower them

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Fintech should empower advisers, not overpower them

Andrew Goodwin continues his columns for Professional Adviser with a look at the world of adviser tech and argues its rapid progress should not be seen as an existential threat…

Many financial advisers see technology as an existential threat. They’re afraid that advances in fields such as artificial intelligence are rapidly eroding their offering and will eventually put them out of business altogether.

I think they’re mistaken. Tech should empower advisers, not overpower them. Yet there’s no denying that the era of big data, artificial intelligence and hyperconnectivity demands substantial adaptation.

It’s basically a question of understanding where advisers can genuinely add value for clients today. By extension, it’s a question of understanding what an adviser’s job should actually entail in the face of arguably unprecedented disruption.

By way of illustration, let’s briefly rewind a dozen years or so. Back then, generally speaking, advisers would demonstrate their worth and credibility to clients by parading their product knowledge.

They would run through tax rules. They would detail the nuances and niceties of ISAs. They would outline investment limits – minimums, maximums, dos and don’ts. In essence, they would explain all the stuff clients didn’t know.

To say the least, that’s no longer much of a USP. Simply by searching online, clients can discover all this for themselves. We’re living in an age when pretty much every last shred of humanity’s collective knowledge – financial or otherwise – is just a few clicks or swipes away.

But acquiring knowledge is one thing. Appreciating how to apply it to best effect is quite another. We can have all the facts in the world at our fingertips, yet they’re of strictly limited use if we don’t know how they relate to each other and how they co-create new facts.

True value add

And this is where advisers can really add value now. They need to spend less time talking about products and more time talking about the day-to-day realities and challenges of building a secure financial future.

A major step in this regard is to abandon the notion that the number-one task is invariably to take a given sum of money and make it larger. This can be an extremely unhelpful mindset if we accept – as I do – that everyone and anyone can benefit enormously from financial advice.

In my experience, advisers with an excessive focus on generating wealth end up putting too much effort into issues such as fund selection, portfolio construction and performance. These are principally concerns for a fund manager, not an adviser.

In the vast majority of cases – that is, those not involving individuals who are already rich – it’s far more useful to stress the significance of saving. Clients need to grasp the supreme importance of accumulating assets by investing their income rather than spending it.

Imagine, for instance, a young client who earns £30,000 a year. Let’s call him Joe, as in “average Joe”, since his salary isn’t a million miles removed from the current average salary in the UK.

Joe will probably need £600,000 – 20 times his annual income – to retire comfortably. The chances are that no amount of inspired stock-picking and strategy-switching will rack up that magical target, especially with a small savings pot as a starting point. In the final reckoning, like it or not, Joe will have to fund most of it himself.

So Joe needs to know about his shortfall. He needs to know, for example, that even if he has £150,000 to invest it would take around 20 years of growth of more than 7% per annum to get where he wants to get.

Armed with this sobering information, Joe could perhaps be forgiven for deciding he has no hope. But the message can still resonate if it’s framed in the context of little victories.

Joe has to recognise saving is like losing weight or improving a golf handicap. It’s a journey of increments and seemingly modest triumphs. Like every ounce that’s shed or every shot that’s shaved, every pound that’s safely set aside ultimately counts for something. It’s all about edging towards a goal.

Even amid the rise of supposedly sophisticated robo-advice, this kind of insight and reassurance really can’t be gleaned from a machine. Technology can’t encourage people to take control of their money; nor can it act as their trusted guide through the financial maze.

This is instead the stuff of hard-won expertise, experience and empathy. It’s why advisers, not algorithms, are best equipped to work closely with individuals and carefully steer them ever nearer to some of the most crucial objectives they will ever try to meet.

Of course, tech can still be an ally. The broader IT revolution has to be embraced because many of the advantages it brings – both for advisers and for the clients they serve – are undeniable.

Most obviously, tech is in a league of its own in terms of resource-intensive activities. No one can sincerely dispute this. Its capacity for “heavy lifting” has completely transformed the landscape of finance in multiple vital respects.

Yet this remains something to be welcomed, not feared. Why? Because it grants advisers more freedom than ever before to do what they do best – which is to engage, develop lasting relationships and strive to make a positive difference to the lives of others.

An adviser’s fundamental mission has always been to deliver optimum outcomes for clients, and this certainly hasn’t changed today. But the inescapable truth is that a lot of other things have ­changed – which is why we all need to reflect on what we do, how we do it and why it matters so much.

Andrew Goodwin is co-founder and CEO of Truly Independent and the author of ‘The Happy Financial Adviser’.