By Tom Murray, Head of Product Strategy for LifePlus Solutions at Majesco.
Reaching the 90% who haven’t accessed financial advice lately- many of whom have never received advice - is key to rolling back the necessity for sate involvement in supporting people, particularly in their old age. This is a vital factor for society as populations age and governments struggle to contain the cost of social support.
To reach out to this huge section of the market, we need to understand what has created such a substantial gap in the first place. Firstly, there is definitely a supply problem. Given that most financial advisers report themselves as very busy, there is clearly nowhere near enough spare capacity in the system to cover a gap that size. And the industry is not flush with new wannabe recruits – certainly not the scale needed to solve this problem. Of course, there is a bit of a Catch-22 situation here; so few people use financial advisers regularly means that awareness of the profession is low in general, inhibiting recruitment.
In addition, many would-be consumers are put off by the cost of the service. Given the rise in professional standards mandated by the regulator, financial advisers now are very qualified, but with this level of qualification comes dearer per hour costs. Thus many believe that the price of financial advice is disproportionate to the amount of money they have to invest.
Finally, there is the problem that without exposure to the financial services sector, lots of people don’t appreciate the number of products that are available and how they would benefit from them. As a result, they are not aware that they are missing out. This is a another Catch-22 situation, as without advice, how can they understand the benefits that advice brings.
Technology is the key that can unlock the wonders of financial services to the masses. Whilst training an individual adviser is expensive, it is cheaper than the process required to automate it. However, time is a restricting factor in one-to-one scenarios and limits the number of people who can receive the service directly from an adviser, putting a ceiling on the return that comes from training new advisers. Here technology has two important roles to play.
In the first place, digital advisers can be used to ensure that financial advice is available to the masses at an affordable price. Areas that are tightly regulated are very suitable for digital solutions and few areas are more tightly regulated than the financial services sector. Deploying digital advisers extends the reach of the company and scales its capacity to deliver financial advice rapidly. In the medium-term, digital advice is the only way to reduce the per-unit cost of delivering advice in order to reach the masses.
Secondly, when it comes to traditional advice versus digital advice, it is not an either / or scenario. Digital advisers can be used by the more traditional advisers to increase their productivity, carrying out parts of the process that are time-consuming and leaving the advisers free to deal with the trickier cases or those where the customer wants a final session with an adviser to review and tailor the recommendations.
The adoption of digital advisers to provide D2C and hybrid channels opens up the possibility of delivering advice at a much lower cost, thereby opening the company up to a completely new market, consisting of those currently not served by the financial advice sector. As shown by the FCA report, there is a huge untapped market out there of people who could benefit from regular financial advice but who could never be served by the traditional industry.
Digital advisers are core to any strategy to reach this market, by providing a completely new affordable channel for those comfortable with operating totally digitally and by increasing the efficiency of traditional IFAs to enable them to deliver advice at a lower cost to more people.
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