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Lower costs, better processes: Future bright for advisers

Advisers will need to change their industry culture to keep pace with the rate of innovation in the financial services sector, a new report says.

Monday, October 31st 2016, 12:00PM 3 Comments

by Susan Edmunds

Mike Naylor

Mike Naylor, a senior lecturer in the Massey University school of finance, has released a new book that predicts an IT revolution in the financial services sector.

But while changes were needed for advisers, Naylor said they were better placed than the insurers and product providers to respond.

"They will have to understand which aspects of their advice follow programmable rules, and can therefore be replaced by software, and which aspect is too complex or psychological to be replaceable. Involvement in activities which create client trust is the most important concept.”

To survive, advisers would need a well-run practice, and to have delegated the routine tasks, like answering clients phone inquiries or tracking transactions or calculating sums producing reports, to lower-paid assistants, he said.

“The key strength the adviser has to offer the ecosystem is their close and personal contacts with clients, and the associated ability to influence them and engage the client in an emotionally-successful life-process. This will lead to far higher persistence rates for adviser clients,” Naylor said.

Successful advisers would know that their financial planning needed to be about advice and interpersonal skills, not sales.

“Aspects of the job which depend on personality skills will survive better than those aspects which depend on mathematical skills.”

He said advisers had generally done a better job than insurers and product providers in creating close relationships with clients, particularly through channels such as social media.

Naylor said the idea that younger clients do not want advisers and would only go online was faulty.

“Evidence clearly shows that the digital savvy are happy to talk to human advisers, and are happier to pay for this than baby boomers if they are approached correctly. The issue has been that advisers in general are used to dealing with baby boomers and do not know how to relate to Millennials and digital  natives. The new generations want the same thing the baby boomers want – a relationship with a competent professional they can trust. They just want to build it on a computer first.”

He said there was no reason to expect a substantial reduction in adviser numbers as long as the industry could respond proactively to change – improving its web presence, for example, to take on roboadvice.

“Banks or generic chain-firms will find it harder to compete with roboadvisers than will adviser firms which already offer a professional, client-focused, service. Individual advisers will have to be strategic about which firms they work for, and need to ensure that their firm has the capacity to move with the waves of change,” he said.

“Advisers who focus on advice and psychological areas will thrive as adviser software both reduces administrative costs and increases client engagement. The passion an adviser can project to a client is very hard for software to re-create.

"It is very likely that the cost of offering advice will drop drastically, maybe to 10% of its current level, while advisers will be able to handle more clients with drastically less paperwork. This reduction in cost should mean a sharp drop in client fees and a correspondingly rapid rise in demand for advice. Advisers who are able to ride the wave of change should find themselves with substantially increased incomes, and happier clients.”

Tags: financial advisers Michael Naylor

« Roboadvice could divert clients: NaylorLVR restrictions to be reviewed »

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Comments from our readers

On 31 October 2016 at 12:41 pm Backstage said:
When was this written, 1985? Perhaps forgot to mention we won't be using calculators and they will be on a phone that can take photos.
On 4 November 2016 at 12:27 pm Tony Vidler said:
Before disparaging Michael's work may I suggest that you read it?

I have only got a quarter of the way through it thus far and it is fascinating as well as prescient.
On 4 November 2016 at 3:16 pm Selwyn said:
No it was written in 1982 by me.It was the result of a bursary awarded by NML agents society. The software that resulted introduced "fast facts planning" for agents at point of sale and from 1985 computers became a part of life for advisors. The Companies that took up the challenge profited greatly. Some up to 40%. Mr Naylor is right Advisors are far better placed than the product providors are at present. 28 years later I still can't change my address with a life coy via the web!

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