The Digital Disruption of the Advisors based Model

Table with computer, advisor's hands, customers' hands

Everyone knows that the digital revolution is bringing a great deal of disruption to nearly every market. Both hardware and software have been extremely commoditized. So now we carry in our pockets and purses computers with considerable processing capabilities that also enable us to access cloud resources from anywhere. What’s more, demographics are following the natural course of time, and millennials are becoming more and more fluent in market choices and directions.

We saw a good description of the digital disruption impacting the advisor-based model in wealth management in a report from Celent Research entitled  Wealth Management Trends 2015 (take a look at the complete report, which contains much more analysis than we can provide here).

Mass digital investors are gaining relevance

Popularization of very personal hardware and software for very personal uses is creating a large and unprecedented opportunity to serve every investor, typically the mass affluent customer, thanks to the adoption of hybrid service models that are effectively disrupting the traditional advisor-based model.

The new millennials are the mass digital investors of tomorrow. They are less inclined to accept investment advice and actually prefer automated and very specific advice, at low costs, always on and reachable via mobile computing when far from a desktop. The more an advisor tries to get close to the average customer, the more likely he or she is to prefer a fully automated advisory solution. For them, even a hybrid approach would be too much.

 

Digital Disruption from demographics

When you combine the preferences of the masses with the inevitable demographic shifting from generation X to millennials, a clear pattern starts to emerge. Millennials – born between 1982 and 2000 – are one of the major population groups. Naturally, they are going to have fairly large sums of investable assets from inheriting from their parents, and are considered the digital natives par excellence.

Their actual digital skills are a bit overvalued, but what is not subject to debate is that they are used to mobile computing, searching advice online, and sharing questions and opinions through networks. Moreover, they approach financial matters with a conservative attitude and exhibit other peculiar traits that set them apart from other population groups.

As it turns out, millennials are a big opportunity for financial advice. They are the segment that will enlarge the market, as well, because they are the elder and dominant generation of tomorrow—a shift that will happen before we even realize it—with an unprecedented knowledge of computers, mobile technology and online services.

The Advice Opportunity for Automated Investment Managers at the time of Advisor-based model disruption

The Advice Opportunity for Automated Investment Managers at the time of Advisor-based model disruption
Disruption also brings new market opportunities. Source: Celent report “Wealth Management Trends 2015”.

But it turns out, too, that it is counterproductive trying to give wealth management advice to the digital millennials in the traditional ways. The human advisor, put simply, will find himself or herself between a rock (the millennial attitude) and a hard place (online services and portals that give away “good enough” automated advice, perfect for the majority of millennials).

This is the disruption that advisors must face: they have to evolve in a way that preserves the value of their competence and experience, and combine it with digital channels. They are facing a new-generation group that expects advisors to support the digital channel and not the other way around. It will be very interesting to see how this disruption takes place and what new forms of advice will evolve over the next decade.

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