Let’s demystify digital advice

Let’s demystify digital advice

by Benjamin Labrousse, Strategic Research Analyst at Croesus

Digitalization, digital advice, digital investment, digital wealth management, and hybrid advice are all current terms widely used in the wealth management industry. Are they just buzzwords or can digital advice deliver value to the investment industry? It is important to demystify these words and identify what they mean for advisors and their clients.

In the U.S., digital investment advice is expected to attract over $2 trillion in assets by 2020. All the industry players (banks, asset managers, independent financial advisors, and fintechs) are trying to get their piece of the pie by providing a digital offer.

Digital advice, a technology-powered source of disruption, mainly aims to remove friction, allowing the advisor to service their clients and build stronger relationships. The interesting point in every disruption we have seen in recent years, including Uber, Airbnb, and Netflix, is that the underlying product or service hasn’t changed. Technology has simplified how we access, use, and interact with these products and services.

Even though the robo-advisor trend is declining, it has led to two new developments in the industry. First of all, advisors are facing downward pressure on fees. Secondly, robo-advisor platforms have developed web-based solutions to easily onboard clients by having them answer KYC questions and then matching them to predefined investment models. Leveraging technology to match client objectives with portfolios is not exclusive to robo-advisors.

According to experts in the industry, to enhance their digital strategy, financial players will have to make big investments. Many players have made the assumption that digital advice was just for the mass affluent market (under $100K) but high net worth individuals also want to be serviced by digital tools.

A McKinsey report predicted that banks that lag behind their peers in digital transformation could see up to 35% of their net profit eroded, while the leaders may realize a profit upside of 40% or more.

Impact for advisors

With these changes and the impact of new regulation trends coming from Europe (MiFID II), the view taken by financial advisors has shifted from being product oriented to a more centric view, based on the client’s objectives. In the U.S., even if the Department of Labor’s fiduciary rule is dead, companies are upgrading their technology to meet client best interest requirements. Today’s advisor resembles an orchestra conductor, bringing together all the services provided by the institution to ensure they suit the client’s lifestyle and goals. Even accompanied by experts, the advisor must maintain a level of expertise sufficient to deal with a number of issues alone.

Increasing regulation has brought more complexity to the relationship between clients and advisors. Firms need to use technology to deal with these low-value tasks.

The majority of financial advisors who are about to retire are not willing to make the move to digital. This digital revolution became mainstream just a few years ago and these advisors do not have a digital mindset in their practice.

Finally, it’s important to highlight the difference between a robo-advisor and digital wealth management. The former is purely a B2C product, even if some players have moved to the B2B market due to lack of profitability in the first consumer market. The latter refers to every tool that the advisor could use to provide superior customization and ease of use. This includes goal-based investment, IPS generator, portfolio optimization, etc.

How a portfolio management solution can help

Using a portfolio management solution, such as Croesus, may help advisors automate aspects of their business (modeling, rebalancing, reporting) to ensure that a client’s objectives are at the forefront of the relationship. Once the advisor’s mind and time is freed up from some aspects of the relationship, they can then focus on value-added tasks such as discussing a client’s life goals. Integrating a portfolio management solution with a digital wealth management offering provides a seamless, optimal experience for advisors and clients.


Experience it yourself, see the difference