The future role of the financial adviser in a market increasingly driven by financial technology (fintech) applications has been addressed in a new study from consultancy EY.
The study predicts that the traditional role of the intermediary distributor will shift from one of a commission-incentivised seller of product, “with marginal regard for the cost of that product” to a new role of more sophisticated buyer directing investments for clients.
The client-facing adviser will soon shift from a seller to a buyer of asset management products, says Jeroen Buwalda, EY’s wealth and asset management advisory leader: “Private bankers may also want to move up the value chain and start offering customised portfolios, by putting together a strategy based around low-cost index ETFs."
Within the next decade, the distribution of funds via the platform channel to Asian investors will likely outpace the growth of the platform channel in the UK or US, the two most developed markets at present, predicts the EY report.
Change is under way in Asia, in particular. Wealth management services are predominantly delivered by the universal banks, with more than 80% of funds sold face-to-face, in formal meetings through large institutions. At the same time, buying behaviour is mostly performance-focused, with investors chasing high returns and advised through personal intermediation.
However, the high rate of direct to consumer (D2C) platform adoption and use of mobile technology in Asia suggests this traditional distribution model is likely to be heavily disrupted, says EY. According to data from US-based Forrester Research, 83% of Chinese customers use mobile applications to bank online, and 73% use mobile applications to invest online.
This investor segment is composed almost entirely of digital natives. "Whether filing tax returns, buying insurance or seeking employment, they vastly prefer an online interface for making spending decisions — far more than any face-to-face sales intermediation," says EY.
In the UK, for instance, "many major banks have downsized out of the investment advisory business as the key millennial market segment simply went online to purchase funds. As investors turn to platforms to purchase funds on their own, " from firms that were never in the financial services industry,
The simplicity of message combined with aplications designed to help educate investors will digital customers to allocate their time and assets to the distribution channel where they feel they receive the best learning experience, allowing them to grow in sophistcation as fintech develops.
Tobias Bland, chief executive of ETF and alternative strategies group EIP in Hong Kong agrees that the role of advisers will change radically as digital distribution and fee-based advice becomes more prevalent in Asia.
“This is the way asset management is changing,” Bland told AsianInvestor. “ETFs are enabling advisers to make asset allocation decisions without incurring high management fees and without the problems of lack of liquidity. They don’t need a large team of analysts. If they have a good conviction on a market or a segment they can rifle shoot it.”