What's Happening?

Financial planners must embrace technology to future-proof their practices



Financial institutions are increasingly adopting technologies like artificial intelligence (AI), big data, cloud computing, digital platforms and Internet of Things (IoT) to meet the customer experience expectations of members of the millennials, Generation Xers and ensuing generations. Fintech – derived from the words ‘technology’ and ‘innovation’ – can be loosely defined as the application of technology to revolutionise the design and distribution of traditional financial products and services. In the financial planning world, fintech is most often associated with the emergence of Robo-advisers and so-called Robo-advice platforms.

Kobus Kleyn – a financial planner and CFP® professional – encourages his peers to view AI, Robo-advice and other fintech innovations as opportunities rather than threats. He was participating in a panel discussion titled ‘Recreating the financial planning model for a sustainable future’ during the 46th annual African Insurance Exchange (AIE 2019), held 16 July 2019 at Sun City, South Africa. “Future-fit financial planners will differentiate themselves from automated solutions by establishing strong family relationships with their clients and delivering advice, product and services with compassion and empathy,” he said.

Differentiating your services

Relying on personal touch to differentiate your services in the digital age assumes that your practice already offers exemplary service. “You cannot advise with purpose and passion if you put the product first,” said Kleyn. “Those who focus on the advice aspect and make the product choice ‘consequent’ to that process will succeed in building sustainable practices”. Financial planners will have to rethink existing business processes and structures if they hope to match the efficiency, lower costs and speed of Robo-advice platforms. You can achieve an edge by collaborating with sophisticated advice partners; specialising in niche product areas; and enhancing productivity with technology-backed solutions.

In mathematics we joke about the three Rs: Reading, writing and arithmetic. In financial services the focus is typically on regulation, (more) regulation and perhaps remuneration. And regulation is already evolving to accommodate the Fourth Industrial Revolution. Nothing illustrates this better than the comprehensive data security regulations put in place in response to firms’ utilisation of ‘big data’ in every aspect of their businesses.

European regulators have adopted the General Data Protection Regulation (GDPR) to ensure data protection and privacy for all individual citizens of the European Union and the European Economic Area. South Africa’s equivalent is the Protection of Personal Information (POPI) Act. “The financial advice landscape is defined by regulation,” said Kleyn. He urged financial planners to leverage the technology at their disposal to improve compliance outcomes in areas like data protection; treating customers fairly; and transformation, to name a few.

An ongoing RDR process

Remuneration is a hot topic in the South African financial planning landscape as the implementation of Retail Distribution Review (RDR) proposals continues apace. In an adjoining AIE 2019 debate, Caroline da Silva, Division Executive: Regulatory Policy at the FSCA, reminded delegates that RDR was not a regulation that would be tabled in Parliament, but rather an ongoing process of introducing its proposals via new sectoral acts or regulations or via amendments to existing sectoral acts or regulations.

“RDR has forever changed our remuneration landscape,” observed Kleyn. “The days of earning upfront commission from investment and a reduced commission structure from risk products are gone – we will have to rethink how we are remunerated for giving advice”. A solution favoured by many financial planners is to focus on hybrid remuneration models, inclusive of passive income with assets under management, fee-based retention accounts and as-and-when fees, across their client base.

Many financial services practices make the mistake of focussing on existing clients without considering the passing of wealth from one generation to the next. Kleyn noted that approximately US$18 trillion in accumulated assets would eventually pass from the so-called Baby Boomers to their Millennial children and Generation X, Y and Z grandchildren. “Millennials and the generations that follow them are not a threat to us,” said Kleyn. “Our clients’ children are our future – we must understand how they interact with technology and match this technology in our practices to avoid losing their business”.

Your future fit financial planning practice

A future-fit financial planning practice might therefore be required to incorporate Robo-advice in its solution set to meet shifting customer needs. Kleyn concluded that the sustainability of financial planning and the adviser depended on accepting change as the only consistent and embracing Millennials, fintech and all forms of technology.


This article was first publish by Gareth Stokes on his LinkedIn page