The main reason I haven’t been able to blog or Twitter much over the last week is that I am currently on a national speaking roadshow for a major financial services firm, hitting five cities in six business days, ending today. The firm is building relationships with its key financial advisors, hosting dinners in the best restaurants in each city, preceded by presentations from a prominent industry figure on the role of regulation and from myself on the big-picture future.
While I work across many industries, my background in financial services means I am often drawn back into the space. Some of my reflections on financial services trends are captured in posts I’ve written after keynotes I’ve delivered on the role of the reputation economy for professionals and financial advisors and the future of global financial services.
The future of financial advice is a massively important issue, not just due to the size of the sector, but also because quality advice is critical for many people in supporting their financial well-being. I will spend some more time delving into this issue, but for now here are seven key trends and issues that I see are driving the future of financial advice.
1. Transparency is making commissions more visible.
Transparency is an inexorable trend across industries, not least in financial services. Visibility of what are sometimes massive advisor commissions on financial product is shaping attitudes to what is fair and appropriate.
2. Commissions can be disintermediated.
A proliferation of online services are enabling people to access financial products with no commissions or rebated commissions.
3. Regulation is supporting a shift from commissions to fee-for-service.
Around the world, regulators are moving to limit or even ban financial product commissions, with many firms seeking to move ahead of regulation by moving to charging clients fees similar to a traditional professional service model.
4. Automated financial advice is getting more sophisticated.
Online services such as Financial Engines are providing detailed financial analysis for individuals, providing significant insights that would have previously only been available through high-level advisors.
5. Traditional financial advice is becoming a wealthy person’s game.
Because of the shift to fee-for-service, top-class financial advisors will tend to limit their work to those who can afford it.
6. Financial advice isn’t a luxury.
Getting good financial advice (and acting on it) is often central to individuals’ and families’ financial well-being. That, in aggregate, cascades through to the health of the economy and society. The availability of good financial advice has an extraordinary scope of impact.
7. A multi-tier financial advice market needs to develop.
People will never be replaced in providing financial advice, as it deals with financial and emotional issues that people may not be aware of themselves. The risk is that only affluent people will have access to good financial advice. There are a number of mechanisms by which financial advice for middle-class and poor people can be provided, by combining online education with human advisors, scaling advice provision through connectivity, and providing incentives for financial advisors to work with less lucrative sectors.
There is more to this story, particularly in what action is taken by governments and others to provide widespread financial education and access to good advice. It is hard to overstate the importance of this issue.