Technological change is the major driver of long-term productivity and growth in almost all industries. In financial services, and with the advent of the computer, efficiencies in transactions and trust, has seen the finance industry become the largest in the world. Technological advances have seen financial contracts settle instantaneously across the world and market efficiency (transactional costs, price discovery, etc) rapidly grow through complex financial modelling and algorithmic trading. Individuals have also seen vast growth in financial services from ATMs to mobile banking; EFTPOS to Afterpay.
FinTech - where the 2 largest global industries merge - has seen exponential growth in the last decade. Some of this has been led by the ever growing levels of household debt in the world - such as peer2peer lending platforms or integrated credit scoring; whilst other drivers of growth has been from the needs of the frontier and developing economies. In such countries, traditional banking infrastructure can be lacking. This creates the opportunity for these countries to easily unshackle themselves from older technologies and embrace new ways of managing household finances.
Individuals also have access to fintech solutions through their financial advisers. These solutions offer both the adviser and client opportunities for lower costs and quicker implementation of strategies. Two key developing technologies that advisers and clients will be paying attention to are 'robo-advice' and 'regtech'.
The analysis of any clients situation and goals is likely to follow at least a few, relatively systematic processes. This might be in assessing a client's life insurance needs and gaps or a regular rebalancing of a portfolio in line with their investment policy statement and strategic asset allocation. Even though each client's objectives and situation can be vastly intricate, some of the more simple aspects of the financial decision making process can be programmed into a robo-advice process.
Many of these solutions have slowly been implemented over the past decade in the toolkit of Australian financial planners. And the evolution of robo-advice will see more and more technological capabilities integrated into the advice and implementation processes. This will enhance the advice process, providing gains for clients and advisers with lower costs and greater efficiencies. It should also help advisers assist greater numbers of individuals across the spectrum of life stage and wealth level. The promise of artificial intelligence could one day also mean the redundancy of human advisers altogether, though such an outcome will likely be at least a few decades yet.
A major outcome of the recent financial planning scandals and Royal Commission has been the increase in regulation and much needed standards. The increase in education standards, which would likely take 3-4 years to fully implement through the financial planner ranks, should lead to a reduction in the need for regulatory oversight - but until the industry can increase its professional and ethical outcomes, the compliance burden on the advice process is likely to remain high. This has the benefit of discouraging malpractice by 'bad advisers', but also has the consequence of higher advice costs for 'good advisers'. This increased cost will be worn by adviser and client alike.
To help with the added inefficiencies created by the added regulatory burden, technological solutions can be employed by advisers. This may help to make sure required disclosure documents are easily provided to clients throughout the advice process, or can help check advice documents for potentially non-compliant advice or wording. Such technology can also be used to scan marketing, reports, social media posts, emails and other forms of communication to existing and potential clients to help makes sure there is no scope to mislead or 'overpromise'. Thus, regtech can help lower day-to-day compliance costs and reduce the potential for client claims as a result of poor advice or misleading information.
Overall, the benefits of added technological enhancements in the advice process are likely to lead to more value for clients and greater accessibility to 'enhanced' advisers. Finance is centred on trust, and the more trust that individuals and planners can have in fintech solutions, the greater the likelihood of efficient and fast financial advice.
LBW Wealth Management is an Authorised Representative of Wealthsure Financial Services Pty Limited AFSL 326450
This article has been prepared by LBW's investment committee based on its understanding of current regulatory requirements and laws. It is not considered advice and provides general information pertaining to our ideology surrounding future asset allocation strategies. It does not take into account each client's individual objectives, financial situation or needs. If you would like to know how LBW's understanding of the current environment impacts on your portfolio please contact a Financial Adviser and to discuss your options or before making an investment decisions.
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