Democratising Wealth Management by Utilising Financial Analytics
  • August
  • 2023

Democratising Wealth Management by Utilising Financial Analytics

Wealth management adopts tech amid challenges, reshaping financial services landscape

From the heightened attention to machine learning to incorporating gamification methods, the wealth management industry has been increasingly more open towards using emerging technology in their workflows. Despite the challenges caused by an ongoing inflation crisis and the brutal war in Ukraine, technology is set to reshape the landscape of financial services.

The question now facing the industry is how these advances in technology can be used to increase the availability of wealth management services and how can companies maintain and even increase their margins when catering to mass affluent segments.

Mind the (financial advice) gap

Over the last few years, retail investors have become a force to be reckoned with as they accounted for 52% of global assets under management in 2021, and is expected to grow to over 61% by 2030.

Many large players join the mission of democratising wealth management, opening investment opportunities to segments that have not been included before. Reuters reported over 100 million users in the US alone with just six of the most popular online brokerages for retail investors in 2021, proving the surge in retail trading. According to CNBC, Robinhood, the retail investing app had around 18 million users and over $80bn in customer assets, as of July 2021.

However, while this looks promising, the advice gap highlights the scarcity of the access to wealth management services. With 73% of financial advisers admitting that the gap between those who get financial advice and those who want it has expanded over the past five years, the problem seems to exacerbate.  A study by Royal London showed that only 26% of adults in the UK seek financial advice, leaving almost three-quarters of the population excluded from the valuable benefits that such advice can offer.

Why does the gap continue to grow?

One of the key factors pushing people away from getting financial advice is a lack of trust in advisers and their ability to manage money and offer good financial advice. Admittedly, there is a dearth of the right level of support needed for people to understand their financial potential.

Secondly, the lack of awareness and proper financial education prevent a large group of the population from investing. A survey by Wealthify claimed 72% of UK savers felt they were not confident enough to start investing and 38% did not understand how investing works. Only a mere 16% with circa £5,000 in savings considered investing.

In addition, financial advice was traditionally limited to HNIs because it comes at a high cost. Mounting onboarding costs result in a large pool of potential investors who are unable to fulfil the threshold for financial advice therefore widening the investment gap. The FCA stated that retail investors would need at least £10,000 of investable assets before needing professional financial help. However, this figure seems to be too low according to financial advisers, who say that customers would need closer to £48,000 before firms would even consider taking them on as clients. In the aforementioned Royal London report, 20% of advisers admitted that their firm would not onboard a client with less than £100,000 and 41% of advisers were forced to turn a client away because of insufficient investible assets.

Per a Kitces report, the average customer acquisition cost in the wealth management market is around $2,167 per client, and this cost rises to $4,056 per client for firms with more than $250,000 of revenue. With competition becoming increasingly stiff, customer expectations rising and regulatory pressure unwavering, it is a tough environment for advisers to support less affluent customers while also maintaining a viable commercial model.

Regulations prompt firms to fulfil their consumer duty

With the aim of aiding consumers to invest with confidence, understanding risks associated with investments, and most importantly improve the standard of advice provided, the FCA introduced the ‘consumer duty’ regime which came into force on July 31, 2023.

Financial companies have been urged to focus on delivering “good outcomes” for customers and preventing “foreseeable harm”. Wealth managers were required to review their investment strategies considering new economic realities. Considerable attention to detail at every stage of the customers’ journeys is no longer an add-on service, but a mandate.

To help firms better prepare, PIMFA collaborated with other trade associations to develop a coordinated approach and produced a cross-sector standardised data set to help member firms meet their obligations under Consumer Duty.

Although the degree of  readiness for Consumer Duty varies within the industry, many players found it difficult to connect disparate and siloed customer data and assess value creation, pricing strategies and customer support quality. By using financial analytics suites like Kidbrooke®’s financial simulation engine, OutRank®, businesses can achieve a new milestone in providing their customers with high-quality digital and hybrid wealth experiences, create dynamic feedback loops about the service, as well as scale their businesses to serve more customers than they could before.

The Synergy: Financial analytics and Consumer Duty

The existence of a broadening advice gap suggests that millions are missing out on the advantages of financial advice. Government initiatives such as financial education programs and consumer-friendly apps powered by financial analytics and personalisation, can not only push more potential retail investors to invest but possibly bridge the advice gap.

At Kidbrooke®, we believe in a world where everyone has access to educated financial decision-making. Therefore, we empower wealth management companies with financial analytics powering efficient digital and hybrid customer journeys. We help our customers scale their business models leveraging responsible engagement methods with quick, granular personalised forecasts. Maximising cutting-edge technology to guide customers towards their financial aspirations will help bridge the advice gap and steer the industry towards higher standards of service.

For example, in our experience, running a physical channel powered by OutRank® can result in approximately 40% cost savings on preparing for meetings and monitoring the customer's financial situation. In the case of fully automated channels, wealth managers can run up to 80% leaner businesses.

Besides, these tools can make a tremendous difference in the communication of value and price – by projecting the effects of taxes, fees and demonstrating value over time both visually and interactively. From the Consumer Duty and business model perspective, equipping your services with financial simulation technology can propel your firm towards better client outcomes in terms of understanding price, value, product, services, and support simultaneously.

By using cutting-edge technology, wealth managers can scale their businesses, reduce costs and efficiently drive better outcomes for their customers, ultimately fostering a more inclusive and prosperous environment in a traditionally exclusive industry. It is time for the wealth management industry to revolutionise their business for the benefit of all, shaping a more equitable and accessible future of finance.

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