01.15.20
AI, Demographics and Digital Dynamism Will Remake Advisory Industry in the 2020s
by: Rich Blake
Around the world, from the most established entities with billions behind them down to dorm-room entrepreneurs on a shoestring, there are forces at work trying to disrupt banking, advisory and asset management.
Reinventing how money is saved, borrowed, safeguarded and invested has been a draw for visionaries hell-bent on figuring out with certainty how money is made. The wealth management breakthroughs owing to the toil of the disrupter crowd over the past few years — coupled with rapidly escalating artificial intelligence (AI) achievements at large that can be built upon — will in the next decade bring dynamic changes to the industry.
So that no one ever has to say “wow, didn’t see that coming,” let's engage in some logical speculation to assess what the 2020s might bring:
Onward and Upward with Robo-Offerings
Even as the largest players (banks and wirehouses) are building programs to deliver premium personal touch services, the new breed of younger clients are going to demand all sorts of tools and features, free, easy and on their phones. The best business models of the future will combine humans and machines, but along the way, do expect new applications to redefine what is possible for self-directed individual investors to be able to accomplish. Voice recognition tech and AI will allow for some sophisticated solutions (e.g. Alexa, divest my accounts of natural gas and reallocate to hydrogen fuel cell companies). Low-cost provider Titan bills itself as an old-school hedge fund (using data scraping techniques to build high-conviction portfolios) inside a mobile app.
Consultant PwC has said it expects "continued use of software bots and artificial intelligence to make operations more efficient and discover insights that can improve the customer experience."
Expect Vanguard and Schwab to continue to lead the business toward automated portfolio construction possibly priced to the point of them paying clients a small rebate just to run their assets, buttressed by data-related revenue schemes. Robo-advisory has reached more than one-quarter billion dollars and could exceed $1 trillion within a few years, according to Aite Group.
Make Room for Auto-Marketing
The trends driving automation in the marketing of financial services are numerous. They include rising expectations among younger clients for a digital experience and new best-interest regulations. "The industry is recognizing the strategic value of combining a strong brand with advisor-driven client engagement and digital marketing," Aite Group stated.
In other words, Amazon-like auto-prompts — and compliance-risk-mitigation strategies — get combined to reach down-market clients. The bet is to grab as many as cost effectively as you can, as some of them will become tomorrow's high-net-worth investor. Traditional smaller accounts will surely be sherpherded toward almost purely automated interaction.
AI Enabled Client Service
At some point very soon, "chatbots" are going to get great at what they do. Already, there are platforms that employ robots to call up companies and dispute overcharges. Voice interfaces are able to deliver increasingly better customer service and help with security. The Chase auto-text asking me if I used an ATM in a new city isn't the most intrusive thing that ever happened to me, and quickly texting “no” didn't put me out. Frictionless auto-cues are only going to more widely proliferate and become the norm.
Basic tasks — balance inquires, for example — can be handled by bots. In the decade to come, new technologies will allow banks to engage customers creatively. Likely, digital voice interactions will reach a point of being indistinguishable from humans.
A PwC study says most (52%) financial services decision-makers are investing in AI. The cost savings attributable to AI are expected to be $447 billion with the next three years.
Digital Ecosystems
PwC says that for most mid-market banks, it will be necessary to extend digital ecosystem to include just about everything mentioned thus far plus much more, as in everything that a bank does. Native digital banks have challenged traditional banks in ways that have cut into bottom lines but also forced innovation to accelerate. Some of the most ambitious and largest institutions may try to reinvent as digital natives to reduce costs and deliver cutting edge products. Financial tech partnerships and off-the-shelf vendor driven solutions will allow an array of possibilities for firms that are only just now realizing the time has come to digitally transform customer acquisition, on-boarding and service; payments and transactions; goals-based product and service sales; benchmarking and social media testimonials. Expect basic technology, such as video conferencing, to improve dramatically and be more seamless and logical, less cumbersome even for the old-school advisors.
Digital Assistants
Many financial institutions will launch or build out virtual assistants.
HSBC offers a Virtual Assistant — select an FAQ and get a quick response from a comely avatar — which seems rife for emulation and augmentation by peer institutions in years to come.
“In designing bots, firms make branding choices that go to the heart of customer experience,” PwC said. “Insurers, for example, might use real-time sentiment monitoring tools to create ‘off-ramps,’ directing customers to human agents when appropriate.”
The banking industry has only begun to scratch the surface with regard to the potential of AI, machine learning, chatbots and advanced technology, said Jim Marous, co-publisher of The Financial Brand. “At the foundation of all of these advances is the ability to collect insights and apply advanced analytics to benefit the consumer,” Marous wrote.
While not every institution is ready to place chatbots high on the priority list of investments, the potential of the technology should not be ignored, he added.
No Denying Demographics
Irreplaceable veteran expertise is exiting the playing field at such a lopsided rate relative to bench strength that by the middle of the next decade the industry could be facing an outright shortage.
According to EY, the average financial advisor is now 50. Advisors under 40 are a scarce commodity, accounting for 22 percent of the field, EY said. Just 5% of advisors are in their 20s. Now consider that only 40% of older financial advisors have a succession plan, EY said.
Automation may not just be a client experience additive it may be needed as a core element of being able to have an investment services program.
Personal Touch
What likely will not ever change is many clients' yearning for an emotionally satisfying (as opposed to purely transactional) advisory experience, many experts have said. This was a belief held in the 1980s, ‘90s, ‘00s and ‘10s.
The more tasks streamlined by technology, the more time advisors can spend getting to know clients and focusing on planning.