As wealth management firms reinvent themselves by embracing hybrid models of both digital and human advice, they must also adapt to how the wealth management front office will evolve, according to a recent report published by global management consulting and professional services firm Accenture.
Technologies like artificial intelligence (AI) and automation will drastically increase efficiency, giving firms the opportunity to provide clients with more personalized services. These disruptors should serve as a catalyst for firms to improve and refine their operating models, particularly their front office, the report says.
“The hybrid model — in addition to technology advancements in artificial intelligence (AI) and machine learning — forces firms to assess how a scaled operating model could offer more efficiency at a lower cost,” the report adds. “Simultaneously, they must analyze the impact of those changes on workforce issues, such as talent acquisition and reskilling. Only when the entire picture is addressed, can a true, future-ready front office be created.”
Client management
With some manual tasks eliminated, advisors will have more time to focus on customized advice for clients, such as goals-based planning, relationships and brand-building.
Some implications are that advisors will have an increased number of clients, they will need more advanced qualifications such as tax planning, standardized services will yield lower fees and commission-based incentives will generally disappear as annual salaries become more the norm.
Investment management and performance monitoring
AI and machine learning is set to majorly impact investment management and performance monitoring with its capabilities in observing the markets and generating customized client reports based on real-time data. Machine learning could also use big data to find patterns in clients’ investment decisions. This means advisors can more proactively manage client accounts or clients could better self-direct their investments.
As a result of such changes, firms will likely have a decreased ratio of support and research staff for financial advisors, support staff will require training in digital research tools, and there will need to be greater unification between front office platforms.
Price models
Pricing models are shifting toward a fee-based model and away from the traditional brokerage model to provide more transparency and flexibility to clients.
Digital advice offerings are targeting clients across the wealth spectrum with fees based on assets under management, that increase with the added support of an advisor. By separating digital and human fees, clients can choose what kind of advice they need.
This means that advisors will need to ramp up their offerings, providing differentiated services such as goals-based financial planning that goes beyond asset management. Advisors will also be forced to better understand clients’ financial goals. Lastly, more salary- and bonus-based financial advisors will join the industry and grid-based and revenue-sharing advisors will slowly diminish over time.
Sales and marketing
Wealth firms can develop a unique value proposition by addressing the growing demand for holistic advice, philanthropic strategy, sustainable investing and family resource planning. Firms could better meet their clients’ needs by requiring advisors to obtain additional certification in these areas.
Clients also expect their advisors to be on the same digital channels as they are, the report says. It’s important that advisors use social media tools to build relationships with current and future clients.
These findings indicate that financial advisors are going to be seeking further certifications to provide enhanced holistic advice, employees will require guidelines and training for social media and new front office employees will need to be digitally savvy.
Risk and compliance
Mitigating risk and managing compliant will remain of utmost importance for wealth firms since AI has the potential to leverage client data and identify risks. This expanded capability is particularly important for investors using self-directed tools. “The resulting volume of complex transactions are more difficult for humans to assess for risk, let alone to assess with the speed required,” the report says.
The downside of increased access to data is a better chance of cyber threats. Firms must ensure customer information is protected when using new technology and as more personal information is shared electronically.
The implications of risk and compliance changes is that there will be less human intervention — and human error — when analyzing risk, improvements to speed and accuracy of fraud detection and a need to expand risk and control frameworks to oversee both people and new technology.