By Joseph G. Ogega, a student in Financial Mathematics at the University of Minnesota and CFA level I candidate.
The Evolution of Advice through Digital Technology
On Tuesday, November 2, 2017, CFAMN hosted a presentation by Randy Bullard, General Manager-Wealth Management for SIGFIG Wealth Management LLC- an online wealth advising company based in San Francisco, CA. Bullard shared his perspective on digital advising, and how likely it’s going to impact financial advising in the future.
How did it start?
Mr. Randy believes that, whereas there may have been some form of digital advising prior to 2007/2008, it is after this period that most start-ups sprang to life, providing digital solutions/advice to address the aftermath of the financial crisis. This space was later explored by Fortune-500 companies through acquisition of these firms.
Why is this happening?
Increase in digital consumption, adoption and technology advancement in robotics, systems integration vis-à-vis account aggregation, have accelerated switching to forms of digital advising. Bullard further believes, collapse of active asset management and introduction of passive indexed investing at a cheaper cost in most asset classes, may have been a catalyst as well. Also, the initiative to promote transparency to stampout bad practice and compress service fees (from 250 bps to 50 bps), significantly contributed to embracing digital advising. The success realized so far is believed to be anchored on the basis that, application data science on digital advising is easily quantifiable and measurable.
Which are the operating models?
He highlighted the following operating models that are applied in practice i.e.:
- Self -service advice
- Advisor led, digitally enabled
- Hybrid on-line /call center
- Local office experience
Perceptions of Financial Advisors towards technology
According to Bullard, FAs believe that advancement in digital technology provides a fluid way to interact, engage and educate clients as well as provide platforms through which firms can collaborate. Moreover, FAs have witnessed significant growth in business through leveraging social media to build brands and improve client experience (e.g., Client retention ↑ 77%; Assets under Management ↑74%; Client Interaction ↑73%).
Bullard predicts that in the near future, there will be fewer FAs who will primarily focus on adding value to high net-worth clients with some form of wealth complexity. He foresees that today’s traditional financial advising will evolve into a superior sophisticated full service, with capabilities of digital advice at a lower fee (<25 bps), and consequently wealth management firms will transition into digital advice as their primary source of service delivery.