Client relationships of the future

Coach says: As a tech geek, you know that your cellphone has more computing power than NASA had when Neil Armstrong landed on the moon. I believe that trend will not only continue, but we will see exponential advances in technology that will dramatically revolutionize our industry – the rules that govern it, the way we do business and the relationship between advisors and their clients.

Exponential change is gradual at first, as if there is no change at all. Then one day we wake up to find everything around us has been revolutionized. Thanks to the Internet, unrestricted access to information has empowered consumers by making them better informed, more selective and price-conscious, forcing advisors to adapt their businesses to a new economic reality.

Advisors will continue to have an important role for many clients in an increasingly complex and technology-dependent world. However, I see that role changing from one of product and process expert to consultant and coach. The job will be not so much to calculate this or that, manage products or deal with administration. It will be to guide clients, through self discovery, to articulate their life goals while encompassing their financial goals.

The job will be to engage them, through technology, in determining the best courses of action to meet those goals. It will be to help them develop the emotional rigour to stay the course toward their objectives when so many things try to knock them off track. Client/advisor relationships will be deeper and more intimate than most are today. Consequently, they will be more enduring and valuable over the lifetime of a client.

To illustrate the impact of this accelerating rate of technological change, let’s consider how people will become clients in the first place. When I ask advisors how they built their businesses, most will say through referrals, even if that is not exactly the truth. Of course, referrals are great to receive. However, what’s the first thing a prospective client does today when referred by an existing client or centre of influence (COI)? They “Google” you, of course! And what do they find? Hopefully, an impressive LinkedIn profile; a website offering valuable information; some media mentions and testimonials; and, ideally, offers to download your eBook, which addresses issues that matter to them.

So my question is: “Did that referral come from a client or COI, or from Google?”

Today, people are more likely to refer someone to Google to do their own validation than directly to an advisor.

But let’s assume that whatever led people to you, they are interested in working with an advisor. What happens next?

Likely, you have some sort of fact-finding process to learn about the client’s situation and objectives. You then analyze the information gathered to identify solutions to the client’s issues. You meet again to present your recommendations and, assuming the client accepts them, you begin the onboarding process – completing multi-page account-opening forms, arranging transfer of funds, etc. After a few weeks (hopefully), everything is in place and your client falls into the routine of regular reporting and periodic reviews.

Let’s compare that to what it might look like in 10 years.

A prospective client comes to you by whatever method. However, before you first engage – quite possibly through video conference rather than in person – you will know a lot about each other. Just as the client will have researched you online and through their social and business networks, you will know their demographics – age, income, work history, family status and approximate net worth.

You will also have a good idea of their values, beliefs, investment knowledge and experience. You will know the causes they support and their level of community involvement. Importantly, you will be able to identify shared relationships and common interests, allowing you to judge, in advance, if there is a potential “fit.”

In that first encounter, rather than “selling yourself” by describing your unique value proposition, you will demonstrate it, in real life with the client. Chances are they will have already completed a self-diagnosis of their needs, which they will share with you. With their permission, you will access all their financial data, automatically aggregated from all the financial institutions with which they deal. If they haven’t already done so as part of their self-diagnosis, you will complete a psychometric risk profile that far more accurately measures their risk capacity than the simple “know your client” questionnaire used today.

Together, you will walk through a highly intuitive financial planning program that algorithmically integrates current situation details with risk tolerance and objectives to produce a completely personalized action plan, taking into account such issues as taxation and liquidity needs. There will be no more Wizard of Oz-like, behind-the-curtain analysis. You and the client will be able to implement a comprehensive, fully integrated plan by the click of a mouse or voice command.

There won’t be any forms to complete because all of the account-opening details will already be stored in the “system” of networked technology. Automated investment policy statements will direct money into a portfolio fully customized to the client. Monitoring and rebalancing will be managed robotically. Funds will transfer instantaneously from wherever they are to wherever they need to be.

Because clients will be able to access all their financial information (not just what you are managing) in one easy-to-use place, on-line and in real-time, the traditional service regime of regularly scheduled review meetings will disappear. In its place, you will have ad hoc conversations with clients – more about their lives than their money. Because many of the things on which you previously based your value proposition – financial, tax and investment planning, or securities and manager selection, for example – have been assumed by technology, your role will change from financial expert to friend, counsellor and collaborator. Your EQ (emotional intelligence) will matter more than your IQ.

The compliance burden will decline due to the narrowing of product choices and the automation of portfolio design, along with the integration of financial advice. This presents an interesting challenge for regulators regarding fiduciary responsibility for advisors. Will they ever be able to accuse an advisor of failing to put client interests ahead of their own, if the advisor follows an artificial intelligence-driven, integrated, technology-based process that automatically aligns client objectives and risk tolerance with real-time investment management?

You will deliver client service on demand, rather than under some segmented, service-level agreement. In fact, I expect a higher level of self-service by clients for things such as changes in address and banking information, withdrawal of money and producing tax slips.

Finally, because your role will change from being a technical expert to that of a coach and friend, you will have to ensure you are equipped to fill those roles. That will likely involve additional training in coaching methods and, dare I say, some basic knowledge of psychotherapy. Unfortunately, many advisors are unprepared or unwilling to assume those new roles.

Jack Welch, former CEO of General Electric Co., once observed: “If the rate of change on the outside exceeds the rate of change on the inside, then the end is near.” I do not believe that advisors will become irrelevant or face extinction. Quite the opposite: our industry will be technology-driven, but people-powered. I will have more to say about what that means for advisors in a future column.

George Hartman is CEO of Market Logics Inc. in Toronto. Send questions and comments regarding this column to george@marketlogics.ca. George’s practice-management videos can be viewed on www.investmentexecutive.com.

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