Citadel Investment Services Proprietary Limited is an authorised financial services provider.

Service. Price. Performance. These are the key metrics by which to judge the value exchange between clients and advisors. Historically, the delicate balance between these three has informed the quality of the advisor and investment solution. But, in a post Global Financial Crisis world, our understanding of these three metrics is changing as new factors come into play, impacting how we measure the value proposition of financial advice.

Increased regulation is one notable change following the fallout of the financial crisis. Having turned the spotlight on the inherent risk in investing, the crisis pushed regulators to afford investors and consumers better protection from the cowboy-type behaviour that was prevalent in the financial services industry at that time. The effect of this additional regulation has been the introduction of greater scrutiny and a wider understanding of fee and return benchmarks, as well as increased professional competency requirements. 

As a result of these regulatory shifts, the focus moved increasingly to service and the quality of advice offered. Advisors now need to compete on aspects such as their social skills, their understanding of behavioural finance, and their ability to build relationships with clients in order to understand their needs and help them fulfil their unique goals. 

More recently, the rise of fintech and robo-advice is asking questions about how financial and investment advisors offer value, how is the role changing and how best can they complete in this new world.

A CLIENT-CENTRED APPROACH

In light of regulatory changes, the focus has been switched to the human touch. To meet this demand, advisors must be adept at offering more holistic advice across all aspects of financial planning, from investments to estate planning to tax. These right brain metrics cannot be replicated by fintech and robo-advice.

The resultant need for high-touch conversations means that advisors have morphed into veritable financial life coaches, who walk beside clients through each of their lifechanging moments and decisions, be it choosing a new school, to how best to support aging parents, or even deciding where to live. Simultaneously, advisors need to constantly keep an eye on the horizon, helping clients to mitigate any unforeseen risks, manage their debt burden before it becomes unmanageable, and assist them in strategising for the successful intergenerational transfer of their wealth. 

Far from becoming defunct, advisors are in high demand in the current era of uncertainty and rising complexity in financial markets, particularly for their ability to create tailored financial solutions to meet each individual’s specific needs. 

WHERE TO FROM HERE?

We are already seeing the evolution of financial advice in this deeper client interaction relationship. Advisors are now required to offer clients the benefit of consistent communication, ensuring them peace of mind and comfort around the clock. 

But effective businesses with a long-term horizon cannot afford to stop here on this evolutionary journey. They need to encourage further engagement and resonance with clients by competing on a whole range of new metrics such as philanthropy, responsible investing and sustainability.

Wealth managers are now able to help clients by giving greater purpose to their money. This is achieved by offering strategic guidance in selecting and supporting appropriate charities, non-governmental organisations and sustainable investments with the aim of accomplishing positive social, economic and even environmental change. While spontaneous and ad hoc charity is important, a more structured approach is necessary to create sustainable long-term change.

THE FUTURE OF FINANCIAL ADVICE

While an increased regulatory burden is currently having the unfortunate effect of squeezing many smaller businesses out of the industry, this new playing field has simultaneously opened new opportunities for financial advisors to deepen their relationships with clients and strengthen brand loyalty. This is seen in the fact that many client-centric or service-driven businesses have continued to experience positive inflows in recent times, despite an economy under pressure and a volatile rand.

These inflows prove the point that, even in times of uncertainty, businesses with a willingness to engage and block out the noise for clients, businesses that are aligned with their clients’ interests, will continue to thrive. 

From robo-advice to regulatory changes, the lesson for the financial services sector at this time is simple: financial advice is nothing if not personal. While performance and fees will always be vital, the value of financial advisors will never be in dispute as long as they remain focused on their key purpose: offering their clients real, dependable advice.

Written by Citadel Chief Executive Officer, Andrew Möller