Despite fears of digital advice undermining advisor relationships, a new report concludes that digital offerings will not replace advisors, but rather will improve the way advisors form relationships with their clients and scale their businesses.
In its report, U.S. Retail Investor Advice Relationships 2018: Optimizing Engagement, Cerulli Associates finds that client-facing digital tools will increasingly serve as a complement to traditional advisors, enabling them to spend more time on client-facing activities.
While many investors have come to expect an omni-present digital experience, they also demand the personalization, insight and analysis that only a live advisor relationship can facilitate, the report notes. Accordingly, Cerulli emphasizes that it’s incumbent upon advisors to evaluate and implement technology that enables them to elevate their service levels across all accounts, large and small.
“As many practices seek to build scale, it is important to remember that the human element of discovery is irreplaceable and that the best use of technology is to enable advisors to spend more time in client-facing activity,” notes Scott Smith, director at Cerulli. “With the industry focused on creating efficiency and scale through digital platform development, the worth of face-to-face meetings has been relatively discounted,” he adds.
The findings suggest that the future growth of wealth management will be driven by hybrid models that allow investors instantaneous access to information and analysis that is guided by human advisors who provide ongoing advice and overall relationship management.
To that end, Cerulli foresees digital engagement being a core component of every firm’s wealth management offering and estimates that total assets in the digital advice segment will exceed $1 trillion by the end of 2023, up from nearly $295 billion by year-end 2018.
Fee Compression
Meanwhile, fee compression is a frequent topic of concern among wealth management providers, but the report notes that relatively few investors cite fees as their primary determinant in provider selection. Despite broader awareness of the types and amounts of fees associated with their investing relationships, the vast majority are content with their relationships, the findings suggest.
But to drive new business, Cerulli emphasizes that providers will need to address the challenge of “consistently communicating” the benefits of a more comprehensive advice relationship to investors who may already believe they are receiving maximum value from their current providers.
“As they face the dual threat of fee compression and increased competition through expanded target markets, it has never been more important for advisors to reinforce their value proposition while matching investors’ preferences whenever possible,” the report further suggests.
