In recent years, the shift to digital-first advisory models has gained momentum, enabling IFAs (Independent Financial Advisers) to conduct more business through investment managers and platforms.

Over the past decade, both advisers and direct retail investors have increasingly favoured platforms as the designated channel to access investment products. The attractiveness of platforms is chiefly driven by the investment fund range they offer.

A further consideration is investment fund returns. Beyond products and performance, low costs are still quite decisive to advisers. Looking at the bigger picture, a growing interest in the use of model portfolios and discretionary portfolio management is being registered, driven by clients' preference for specialist advice and the need for additional expertise where it is not available in-house.

But how can those funds and IFAs come together? Research recently conducted in the UK predicts that, in the next 12 months, more than 50% of IFAs will increase their business to third parties. More than 70% will digitally access these third parties via investment platforms daily and the vast majority will differentiate their business by using multiple partners.

Investment managers need to take note of this. IFAs are a key distribution channel for them, so understanding IFAs' preferences is crucial for investment product providers wanting to expand their distribution reach.

Being in constant contact with clients is a must for any financial adviser, but many fail. If things are ticking over nicely it is tempting to get in touch only when there is a problem. Today’s clients expect more. They want a relationship with their advisers and they also want some choice over how and when to communicate. Having an omni-channel client relationship is more necessary than ever, particularly since the pandemic. If IFAs do not keep up with the new technology, they are more likely to lose their clients.

Onboarding is another area to watch out for. If the entire process is clunky and slow then there is the danger of losing the client before they have even signed up in today’s digital-first world. Onboarding and client reporting should be paperless, and include digitally signed proposals and contracts.

Another issue is how financial advisers address intergenerational wealth transfer, which is a pounding topic these days. According to Schroders Survey, three quarters (74%) of advisers view wealth transfer between generations as an opportunity for their business.

In the survey, Gillian Hepburn, Head of UK Intermediary Solutions at Schroders, commented that there is a new generation engaging in investing, though not in a ‘traditional way’, and an ongoing lack of engagement from advisers with the very generation who will inherit the wealth (and in some cases already inheriting). This could result in the next generation choosing an online or hybrid advice solution when and while inheriting wealth, rather than turning to their parents’ long-trusted adviser.

However, when it comes to engagement, only around one in three advisers said they have a specific proposition for addressing the transfer of family wealth to the next generation.

What is more, very few (21%) have a sales and marketing strategy specifically aimed at younger investors. This is further supported by the survey results indicating that the percentage of advisers that will accept new clients with less than GB£50,000 has been continually declining and is now at just 39%.

These key strategic priorities could be addressed with an incremental and agile approach to digital transformation, providing, initially, a minimum viable solution followed by incremental sets of features and releases:

• 24/7 adviser digital portal for investment solutions simulation, sales, insights, accessing their book of business, anytime and anywhere from any device. Reporting and monitoring to increase market penetration integrated with a legacy back-office is also a requirement.
• Digital paperless client onboarding and mandate set-up solution including post-onboarding client management and servicing features like suitability reviews, suitability monitoring, and client communications management.
• Digital client engagement portal and apps empowering clients to access and manage investment information anytime and anywhere in collaboration with the IFA for secure messaging, document sharing, digital signature of proposals and contracts amendments.

Next steps could be incremental releases to fully digitse all client lifecycle management processes, to increase profitability by reducing operational costs.

Winning the IFAs’ digital challenge – A real use case
Our customer wanted to become the platform of choice for UK IFAs. The firm could offer a complete set of investment services to IFAs, from full SIPPs and complex pension investment options, to boutique discretionary investment management services and Investment Trusts, etc.

Just before the pandemic our client, a major UK-based investment manager, decided that the only way to regain momentum on the market was to transform their business by introducing a set of paperless digital services to facilitate the way IFAs conduct business with them.

Thanks to a comprehensive digital transformation programme, the firm gained a competitive advantage against peers in the IFA market arena, demonstrated by a strong growth of IFA business and net inflows.

The platform was available on the Cloud, shortening the provisioning with guaranteed service and security levels.

Moreover, the IFA’s TCO (Total Cost of Ownership) was reduced by increasing adviser productivity, boosting digital client penetration by attracting digital savvy investors, and increasing the IFA’s NPS (Net Promoter Score) by generating leads through referral marketing.

With Covid-19 accelerating the need for remote and paperless interactions, this project successfully addressed the growing demand coming from IFAs and their clients. The brand was, therefore, repositioned as a digitally-enabled advice-driven business, ready to face future competition today.

Figure 3: Advanced Advisory Experience. Source: Objectway
 

This article is from The Wealth Mosaic’s UK WealthTech Landscape Report 2022. Access the full report here.