Building for the future: The financial advisory model for the digital generation

Financial advisers and private wealth managers face an increasingly challenging external operating environment. A combination of margin pressure, rising costs, and process inefficiency is challenging the traditional advice model.

Add to these challenges, the pressures from new entrants, regulatory and compliance requirements and an increasing demand from wealth management clients for more personalised services and quality advice, there is a real – and ever more urgent – need in the market for financial advisers to reinvent themselves and their business model to stay relevant and future-proof.

This is all happening during the largest intergenerational wealth shift in history, as the baby boomers pass on wealth to Gens X, Y & Z. According to estimates from Australian Productivity Commission, approximately $224 billion will change hands each year until 2050. 

So who are these new investors and why does the traditional model not work for them?

A generation that cares

These are generations who are somewhat more self-sufficient in the way they deal with most things, they are more averse to using intermediaries than previous generations. For instance, they typically do not use travel agents and prefer to research and book their own hotels and flights. They may even buy a car online without ever visiting a dealership. They are much more technology dependent and expect everything to be at their fingertips whenever they need it. The idea is if something is not on your mobile, then it’s not important.

These generations are not as able to jump on the property ladder as early as previous generations. Housing is becoming increasingly unaffordable (and unavailable), forcing younger Australians to consider alternative options for generating wealth. So while they are saving up for a deposit, they are looking to invest elsewhere. 

A recent CommBank study showed 86 per cent of millennials want to have more open discussions about investing their money, with 50 per cent of those wanting to discuss investing in the stock market, 45 per cent in investment and 43 per cent in Superannuation. 

They want access to global markets and are led by global topics, themes and companies that hold a specific interest to them.

This is a generation that cares. They are more idealistic about what the world could be like. ESG and impact investing are of higher relevance to them and they believe money matters and can make a difference. They are more ethically conscious investors than previous generations, using money as a vehicle to shape the world they want to see. A recent Calastone report showed that inflows to ESG funds exceeded non ESG in Q1 2022 for the first time, an indication that they want to invest in companies that share common values with them.

So how do advisers handle a client base that start earlier in life and haven’t necessarily built up their wealth yet, who cannot afford a full-advice model and don’t actually want to hand over full responsibility, but want more active engagement, regular change and the ability to take advantage of opportunities immediately?

Digitisation is the way forward

Advisers have to go digital, as it offers opportunities to scale through greater process automation, while also delivering the greater flexibility, customisation and optionality needed to meet evolving client demand. 

This doesn’t mean that low-cost trading apps and basic robo-solutions are the only way forward. They should be seen as tools that advisers can use, and can be part of a complementary suite of products and services that advisers access. 

More importantly, advisers need simple yet sophisticated tools  that can help them achieve scale, automation and effectiveness, allowing them to be nimble in servicing clients anywhere and anytime, be able to serve more clients, and provide quality financial planning and investment advice which is still the hallmark of an advisory business that requires the human element of understanding personal financial requirements.

A modern adviser’s digital toolset would include the ability to monitor multiple client portfolios and distribute news, insights, analytics and reports to clients via apps, would provide direct access to global multi-asset markets, as well as helping clients digitally implement and maintain portfolios based on personal goals and objectives via smart solutions.  

Solutions have to be tailored to individuals, a one-size-fits-all approach to investment management does not suffice. Being able to charge fees scaled to the level of service provided within each tool set is also key to the onboarding, retention, and growth of these client relationships.

Scaling up your advisory businesses' digital efficiency to serve the younger generation of clients is a win-win for financial advisers and the fastest way to achieve this is to tap into partnerships and fintech solutions to expedite the digital transformation journey allowing you to concentrate on the core business of advice. 

Gaye Anable, head of institutional partnerships, Saxo Markets Australia