The future of financial advice

…no, I’m not referring to the Parliamentary Joint Committee on Corporations and Financial Services’ Inquiry into financial products and services. Though of course we welcome any reforms that improve the quality of financial advice in Australia, and enhance retail investor protection.

What I’m referring to here is undoubtedly another key driver of the future of our entire industry: technology. And while some aspects of this transformation may have advisers worried about potential redundancy, I believe there is enormous upside potential to embracing these changes proactively.

Below are three areas where advisers can embrace technology as a means to create a competitive advantage.


1)      Robo-advice

No, we’re not all going to be replaced by robots or, more specifically, robo-advisers.

In a perfect world (for our clients at least!), everyone would have a crystal clear understanding of their financial goals. They would also know the exact investment mix required to achieve these goals. In this world, robo-advice might be a mostly adequate solution.

In reality, however, most of our clients need a great deal of ongoing assistance to clarify their changing goals and aspirations throughout their different life stages. Without this ongoing assistance, your upfront financial “plan” doesn’t really have any clear direction. Without ongoing revision to the plan, even the most solid strategy can be quickly derailed.

Given a dynamic understanding of what is important at any given time for your client, robo technology can then be used by advisers to become more efficient and streamline processes in terms of implementing these goals. In this sense, it can be used to augment our expertise not replace it, and improve operations.


2)      Alternative finance and fintech

Alternative finance involves lending instruments that differ from traditional models, such as crowdfunding, P2P and marketplace lending, and invoice funding. The sector itself is growing rapidly, and covers a great spectrum of funding requirements: cash flow loans, private equity, asset finance, commercial property investment and development projects, management buyouts, acquisitions, niche requirements around pension-led funding, and investment opportunities via the alternative market, to name just a few.

Many advisers seem reluctant to consider the alternative lending space for their clients, due to a perception of complexity or costliness. However, costs are not always as high as some might believe, and alternative lending solutions may help where traditional lenders fall short.

As the sector grows, we’re likely to see a greater and more competitive product range emerge. There are also an increasing range of educational resources available – such as the upcoming AltFi Summit, various reports by accounting firms, and a number of educational books. So while we don’t directly endorse any specific material (insert obligatory disclaimer here!), there simply is no excuse for advisers not to keep up with the space through self-education.


3)      New forms of ETFs

Exchange-traded funds remain a mainstay of most diversified portfolios held by anyone from sophisticated institutional money managers, to novice investors with only the most minimal experience. On first glance, they might appear to be one of the more traditional instruments out there. But times they are a’changing.

Early ETFs focused on traditional asset classes (stocks, bonds, cash) or mimicked the returns from well-known indices like the S&P 500, ASX 200, or NIKKEI 225. However, these days,

ETF developers are using technology to slice and dice the global economy, and construct unique investment vehicles that fill every niche imaginable: cryptocurrencies (KOIN), financial blockchain applications (FINX), gold mining (GDX), marijuana (MJ),  livestock (COW)… the list goes on.

What was first launched as a low-cost diversification tool has rapidly become a means to locate, target, and leverage highly-specific sectors of the economy. Customization driven by technological advancement means there is now an ETF to match nearly every personal or investment objective.

The lesson here is that technology can be used to provide truly unique, tailored and convenient offerings, that clients may embrace. So we can no longer settle for what worked yesterday – it’s time to leverage technology and build a new model for the future.


By Katrina Haskew, Managing Director of Leading Advice