PIMFA
Financial advisers and automation
The financial services industry is undergoing a rapid digital transformation, and this trend is significantly impacting the UK independent financial adviser (IFA), wealth management and personal pensions space. These new challenges include:
- a talent shortage due to the aging demographic of advisers and lack of new talent entering the industry
- escalating operating costs due to current economic conditions
- insurance premiums and compliance expenses
- as well as a sustained decline in real household disposable income since quarter one of 2020, which can reduce demand for financial advice as well as the ability or willingness to pay fees to receive such advice
In response to these challenges, IFAs are increasingly turning to automation.
How are IFAs leveraging automation?
Our recent Real Economy survey showed that process automation was the second most important action businesses had taken over the past 12 months to combat staffing challenges, with 76% of respondents stating that the successful implementation of automation had directly resulted in improved productivity.
Robo-advice
The rise of robo-advice is transforming the way financial advice is delivered. Robo-advice platforms leverage algorithms and artificial intelligence to provide automated investment advice and portfolio management tailored to clients’ individual goals and risk tolerance. This surge in popularity is driven by the affordability and convenience it offers, allowing IFAs to serve a broader client base.
Client data and portfolios
Automated systems allow financial advisory firms to streamline the client onboarding process in a drastically reduced time. For example, automated ‘know your customer’ (KYC) checks can reduce effort and time, while still ensuring compliance.
Automation can be applied to client data to aggregate and analyse bank accounts, investments and pensions, as well as to automate client risk profiling. Additionally, portfolio rebalancing processes can be automated to monitor performance, trigger alerts and execute trades based on predefined criteria that are aligned with goals and risk profiles of clients.
Automated customised reports providing insights into investment performance, asset allocation and progress towards financial goals can be generated for clients, providing customers with a bespoke and personalised service as well as contributing to the data required for reporting back to the Financial Conduct Authority as part of their Consumer Duty regime, in force from 31 July 2023.
Automation can revolutionise the way clients are charged based on the value of assets under advice. By leveraging application programming interfaces (APIs), charges can be calculated and delivered in near real-time, eliminating the need for manual and time-consuming processes to determine the total fund value at a specific moment. This streamlined approach offers greater efficiency, accuracy of fees and convenience for both advisers and clients alike.
Communication and marketing
Evolving client expectations, driven by advancements in technology, have created an expectation for an accessible digital interaction with a financial adviser, while simultaneously maintaining a personal touch. Automation is used within the industry to streamline client communication and engagement, such as sending regular updates, newsletters and personalised notifications, or offering a ‘chatbot’ service.
Workflow
Advisers can automate tasks, such as reconciling transactions, managing fees, streamlining billing processes and other administrative responsibilities, which free up time to allow them to focus on tasks that add value to their clients. Automating these tasks can reduce the requirement for administrative staff, while also minimising errors and improving accuracy in financial calculations.
Reporting and compliance
Cutting-edge compliance monitoring tools play a pivotal role in tracking and auditing regulatory compliance by constantly flagging issues, operating 24/7. These tools are designed to enforce adherence to regulations, thereby minimising risks associated with compliance. As a result, employees are relieved of a substantial burden in performing compliance tasks.
Conclusion
Despite only approximately 8% (4.1m) of all UK adults having received financial advice, the FCA wants to make investment advice much more accessible, leading to a rise in demand. Automation can significantly enhance efficiency and scalability for IFAs and, with the evolving customer expectations, IFAs need to adapt and leverage technology to enhance their services and remain competitive. Moreover, automation can also make previously underserviced markets more attractive because the client advice cost is reduced. As with any digital transformation, it is important to consider the risks that come with implementing new technologies, such as regulatory compliance, data privacy and security and cyber risk. It is crucial that there is a clear understanding of the tools used for automation to ensure effective control and compliance, particularly where the technology is outsourced.
The rise of automation, particularly with generative artificial intelligence, is set to transform the IFA space. While emotional understanding and personalised client service have traditionally been seen as crucial aspects of financial advising, technological advancements offer opportunities to maintain a human touch and build strong client relationships.
Erin Sims – Financial Services Senior Analyst, RSM UK
