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Episode 5: The Future of Advice

In the fifth episode of The Intersection, Leslie Wojcik, Head of Global Communications, sits down with John Anderson and Russell Andrews. John is the Head of Practice Management for our advisor business in the U.S., and Russell serves as Head of Solutions for our Asset Management Distribution team in the UK, Europe and Asia. John and Russell touch upon the impact of the pandemic on the advisor space, and chat about what the future could hold for advisors and their clients moving forward.

Enjoy Episode 5.

Transcript

Megan McCloskey:    Hey everyone. I'm Megan McCloskey and I'm happy to welcome you back to The Intersection, a podcast that brings you candid conversations with members of our community and leaders in our industry. This week we welcome John Anderson and Russell Andrews. John acts as Head of Practice Management for our advisor business in the US while Russell serves as Head of Solutions for our Asset Management Distribution Team in the UK, Europe and Asia. In today's episode, John and Russell touch upon the impact of the pandemic on the advisor space and discuss what the future could hold for advisors and their clients moving forward. Take a listen.

John and Russell, thanks so much for joining us today. I know you're incredibly busy. Lot going on with everything that's going on. The Financial Services Industry has certainly been impacted by the pandemic, specifically in the advisor community and the role that advice and technology play in that space. And today investors have so much information at their fingertips. How does that impact the relationship between the advisor and a client, and where does the role of the advisor, which has been historically centered around providing clear meaningful advice, how has that changed?

John Anderson:    Maybe I'll take it first here, Russell, and then you can follow up. I think that the role has changed, I think dramatically over the last couple of years and the recent pandemic, the recent stay at home and everything that's been going on, frankly, I think it's accelerated it. What I've seen around the marketplace is the shift. The shift away from what we call an advisor centric business to more of a consumer focused business. When I say advisor centric, it's the advisor that had the ability to pick the product, pick the service model, pick the pricing, pick how they wanted to interact with the client. The client was kind of stuck because they typically looked for an advisor in their neighborhood, in their town, in their city, in their county, in their area. And what we're seeing today is that with the use of technology, with the use of specialization and with the use of this shift to a consumer centric business, consumers are now empowered to go out and search for the type of advisor that they want, the type of relationship that they want.

You only have to look at other types of businesses to see this shift happening. I look at retail, for example. You've got stores and malls where you were always subject to the inventory of whatever that merchant had. Today I can go online. I can pick any size, shape, manufacturer, color, quantity. I can get ratings, I can get pricing, all sorts of things. So, the consumer's now being empowered to look for and to search out for what they're looking for in a relationship. So, that's where I'm seeing this shift in the advice business as well.

Russell Andrews:    Yeah, I think that's a great point, John. I mean the shift towards the consumer has been pretty profound in the last few months. I think that the point around information is an interesting one because, in my mind it creates this sort of dichotomy in the sense that information is a very positive thing, but at the same time, it can be quite a risky thing or a dangerous thing because, information is great, but if it's out of context, it can also lead to bad decisions or potentially no decisions. But I think what that's actually done is it's presented a real opportunity for advisors to be able to step in and start to help answer some of those questions that their clients have got based upon an abundance of information that is now at their fingertips. So, I think it gives a great opportunity for advisors to start to change their relationship, start to introduce more kind of less tangible elements of value.

So what they may have been providing in the past, really helping clients through an education process. So, people read a lot of information. I think a pandemic has been a great example in that the last six months there's been huge swathes of information presented around what the paradigm means for the economy. And a lot of that can be very scary, but it really, what this does is it gives a good opportunity for advisors to be able to take that empowered investor and really take them through a journey which gets them to a good outcome. And then let the information almost drive the decisions. I would agree in that, that empowerment is actually really, really important because with empowerment often comes in engagement. So as people feel more empowered, they will start to feel more engaged in a situation because they have knowledge, they feel like they can influence and be more involved in the conversation as opposed to being very transactional and historically advisors would have a conversation that was in response to a particular need.

Now these conversations are much more fluid and much more holistic. So I think that having information is really a great, almost opportunity for advisors to start to demonstrate value in different ways.

John Anderson:    I think that's absolutely correct. I wrote a piece back in April and I talked about what we've learned so far. And one of the first things that I wrote was that, advice beats product. And the ability to have a plan in place and the plan that's focused on goals and progress to goals, reporting and giving the client the peace of mind is something that advisors were really latching until today. It wasn't about what can I sell you. It was about co-planning. Allowing them to focus on the whole situation and put it into perspective. And that really was one of the things that I think that, the word you just used Russell, empowering, the more confident I feel in my plan, the more empowered I am to go forward. And that's really what advisors hopefully are focusing on today and we'll continue to focus on in the future.

Megan McCloskey:    So, the information equates to knowledge and that's important to encourage that engagement. The human element is such an important piece that the relationship between an advisor and their clients, how has that changed? Why is that more important today than ever?

Russell Andrews:    It's become so important in the last few months, that having the ability to have that human touch, to really talk to people through what's been a very challenging situation. Particularly clients who might be in a position where they're close to retirement and they've seen that their retirement assets change quite dramatically over a short period of time. So having that kind of human touch, it remains super, super important, but obviously they've had to do it in a different way. We know the human face-to-face interaction has kind of been the cornerstone of financial advice for many, many decades, but that's not been available. So I think what we're seeing is a huge amount of resilience from the advisor community to be able to quickly adapt to a virtual world.

I think it's certainly demystified some of the concerns around how comfortable their clients might be using digital tools as opposed to the old fashioned way of a hard copy proposal and a face-to-face meeting. But I think it's really a testament, as I say, to the advisors who have been able to make that leap quickly and a testament to the clients as well, who have been very adaptable. But we can't eliminate the human nature that sits within advice. That coaching mentality, that ability to gauge and understand. They remain at the forefront of what advice is all about.

John Anderson:    It's interesting, what I'm seeing around here is there's two types of advisors. There's the types of advisors that have embraced the technology. That were early on, they were getting on zoom calls and doing types of mailings and being proactive in the time. And then there's the advisor that kept sitting back saying, well, I'll wait until the pandemic's over and then I'll go back to face-to-face because that's what my clients really want. Over the last couple of weeks I've seen a real big change in the consumer, where they're looking around saying my advisor didn't service me, or I don't have an advisor and now I have specific questions. So the advisors that really embraced this change, the advisors that were proactive and the ones that reached out and used the technology to enable them to continue the relationships are the ones that are seeing growth.

They're the ones that are seeing real advice happening with their clients. I think this is really creating a separation if you will, of two different types of advisors out there. And the ones that are growing are the ones that are using technology and getting out there. And the ones that aren't growing are the ones that are just doing that, wait and see it. And I don't think the world's going to change. I mean, we'll go back once in a while to a face-to-face. But the idea of me as a client getting dressed, getting into my car, fighting traffic, trying to find a place to park, just to go see my advisor for a quarterly update or a semi-annual update meeting, I don't know that I'm going to do that anymore. I think there will be some face-to-face, but we do have to really look at this technology and say, how do we help our clients, but do it in a way that we can all meet maybe virtually a little bit more often.

Russell Andrews:    I would say it's not one way or the other, right. It's about having the option. I think that there are a lot of people who perhaps have even been reluctant to consider an advisor because they don't necessarily have the appetite to want to meet face to face. Some people don't feel comfortable in that type of arena. So being able to offer that optionality, that flexibility around interaction, actually puts you in a much better position to go and service many more clients. And I think the last point I'll say on that is, we are about to enter into a pretty meaningful period of wealth transition where suddenly you're dealing with a different generation and arguably a generation that has spent longer and maybe grown up more so using technology more recently. Clearly technology's advanced significantly, but I think being prepared for that now, having the right technological infrastructure in place as that wealth transition starts to take place again, it means that those who have embraced it are going to be in a far stronger position so kind of maximize that opportunity.

Megan McCloskey:    When you look at this engagement for advisors with their clients, and Russell and John here point with the industry changing even more rapidly now, given the pandemic, there's this trend of hyper-personalization taking place and the importance said the investors they're looking for this. What impact did that have on advisors that, they're not only transitioning their businesses into this virtual world, but looking to hyper-personalize their services where the clients?

John Anderson:    I think we have to look at what the industry is going to evolve into. I've seen a couple of different reports that says, 10 years from now, which very well may be five years from now based on the pandemic. There's really three different types of advisory firms, right? There's the mega firms, the large firms with billion under management, 2 billion under management that have a lot of resources and a lot of scale, and the ability to provide for that ultra high net worth family, pretty much most of what they're looking for. On the other end of the spectrum, there's going to be the digital providers, the ones that provide, I'll say more general financial planning, typically compiled with, put together with maybe a product offering typically low cost ETFs or something to that effect.

And it's that middle section really is where I think many of the advisors, at least the many advisors that we work with let, and what they're doing today is they're trying to find how do I differentiate? I'm not going to out resource the mega firms, and I'm going to be commoditized if I try to compete with the digital providers. So when your clients that are out there that are looking for this again, I go to the internet today and I'm getting pop-up ads and things I looked at the other day and I'm getting other ads come in based on research that I've done. So, we know AI is keeping an eye on us and I'm used to getting this curated content, whether I'm looking for movies or I'm looking for products. I think that people don't go out and type in, I want a general financial plan.

They type in, I'm looking for a specific idea. I'm looking for a specific problem. I want to know how do I exercise stock options correctly. How do I deal with an aging parent with dementia and their financials and things like that. So to my point is that I think today people are in this hyper personalized world and they're looking for advisors that meet their needs. So today the advisor needs to think about how do I personalize my services? How do I create more specialization in my services? How do I create more focus on the services that I provide? And we need to do our marketing, we need to do our websites, we need to do everything around that hyper personalization, if we want to attract consumers.

Russell Andrews:    I 100% agree. I think a hyper personalization is not an important thing, it's an absolutely critical thing. We've all been fully accustomed, like John mentioned, to have in a hyper personalized situation in other walks of life. Whether it's shopping, whether it's streaming content, even with our own mobile devices, we've constantly been nudged in a very personalized type of way. And I think the people won't accept anything other than that through all forms of service provision as time goes by. So I think it's critical that people are starting to adopt that mindset. The biggest challenge, I think for a lot of the advisors, particularly the ones in that center field that John mentioned, this is how do you do it right.

Because it's different if you're an Amazon or if you're a Netflix to be able to kind of collect so much rich information and then be able to repurpose that in an intelligent way, but it's not something that advisors should shy away from either as a result of not being an Amazon. So it's really a question of how do you get the data and how do you accompany that with the right technology to be able to enable you to have personalized in sort of scalable way. That's the big challenge. And I think it's an avenue that advisors will need to look for help. They'll need partners who can support them. I wouldn't encourage anyone to suddenly try and build that architecture themselves.

There are plenty of outsource providers who can do that for them, one being SEI. But really, even though, when you take the data, the data in itself, I always think about it is, people talk about data so fluidly, but really it's like almost a out sequence, Fibonacci code, right. It means nothing, right?

So we need technology to be able to then take that data and to normalize it in a way that then makes it usable. And then we need advanced technology like AI, as John mentioned, to be able to then take that data and actually make it really intuitive and usable. And I think it's only by adopting a strategy like this that really is going to get advisors to the position where they can truly meet the demands of the client. Who's, like I say, have been accustomed to this kind of level of behavior for some time now and in other personal sort of circumstances. So I think there's a lot to do, but I think there's lots of opportunity for advisors to kind of embrace that journey.

John Anderson:    And one of the things that we did a couple of years ago is to try to help advisors. Now, granted, we're not going to go out and buy AI technology today. We're not going to try and do all this different programs. But one of the things that I think makes sense is to start to create personas of what your ideal client looks like. So if I could sit down and yeah, we'll start with the demographic information, but we want to dig down deep into what type of client do I work with best, or what types of clients I work with best. Start focusing on what they look like, what they act like, where they work, what their job title is, what their company is that they work with, who they're relationships to are, how they feel about investing and so on and so on and so on.

So by creating this persona, you can start to ask, what does this persona, what's the best way to market to this person? What's the best way to service this person? What's the best way to, I've charged for my services with this person. By creating these personas, you at least have the beginning stages of creating kind of who this ideal client is. And then take that persona and put that into your CRM. Where now, if you're doing any type of marketing letters or you're into communications, or you see an article, you say, what does my, I think one of the people that we worked with called Retiring Ricardos, what does my Retiring Ricardo look like? And what information would they look like? And then, what are my savings Ally? What type of information would they appreciate in the relationship with me?

And so there are ways to get started, at least creating that persona and say, who am I talking to in my marketing? Who am I talking to in my client service? What do they appreciate? And I'd love to use all the other technology down the road, but at least get started by creating this persona or this avatar whatever you want to call it.

Megan McCloskey:    That's terrific. And you know, when you look at the regulatory landscape within the advisor space it feels like it changes constantly. What role does technology play for advisors in navigating those regulations and the impact that they could have on their businesses?

Russell Andrews:    Technology has already, for some time been a really powerful sword as it relates to meeting a very aggressively changed regulatory environment, but I always want to make sure we come back quick when it comes to regulations that advisors have a regulation because their advisors, right. That's important we don't ever lose that principle. And it's important that technology doesn't sometimes inadvertently create gaps in regulatory standings, but there's absolutely no question that if used correctly and effectively, then technology can make the cost of regulation much more bearable, can make the efficient implementation of regulatory change that much more manageable. We've seen a huge amount of regulation changing, certainly in the UK over the last 10 years with RDR back in starts 2013, we've seen MiFID too come in in 2018, we've seen PRIPs come in.

We've seen a whole suite of different pieces of regulation, which in combination has been a real challenge for many many advice firms. And in fact, I've seen a number of advisors kind of give up the ghost, so to speak, just because it's become too much, it's become too expensive. But if we can adopt a technology strategy to tackle that, it means advisors give themselves a chance. And a good example, that to me is GDPR. GDPR is something that has become a real big hotbed over the last couple of years. We're now collecting data in different ways, using data in different ways. Data requires different levels of permissioning and all of these things trying to navigate that without the use of technologies is, I'd say almost impossible. So being able to incorporate technology to manage your regulatory platform, it's really the only way I think that's going to be successful first for advisors both now and in the future.

John Anderson:    And I think we're dealing with something I, one of these days want to have a longer discussion with you on the effects of RDR because I think as in the US we started with the Department of Labor's fiduciary rule, which didn't go through, but we ended up with regulation BI from the SEC. And I look at that as our first steps into getting to where you are today. I looked at the DOL rule as a revolutionary change, which was too big and too dramatic, I think, for the industry to handle. But reg BI is evolutionary. It's one next step to getting us to that fiduciary rule. And I think for us, it's all about showing your work today. There is no real clear definition of what is in the client's best interest. RIAs do have a fiduciary responsibility and I think the industry is going to continue to move that direction. So show your work and understand workflows and model management and things like that, so that we can be compliant and still provide what we really need to do and that's advice, not necessarily product.

Russell Andrews:    I'm happy to have that conversation, John. RDR was a large, significant milestone in the UK advisory landscape. And I think it really did deliver on a lot of his promises around transparency, integrity, better practice, improving the qualifications of advisors. It didn't hit every mark. I'm not convinced that it really reduced the cost of advice for clients, but I'm not sure that was really the intention. It was really more about creating that clear transparency. But yeah, I can see how the US changes that you were referring to that are very similar that perhaps even slightly broader, bigger, but it's an interesting one because sometimes as someone from the UK, we often look to the US as our kind of yardstick to say, this is how things transitioned, because typically we would be five to 10 years behind, but in this case, I think the UK has arguably led the way along with one or two other countries like Australia, for example, in really trying to evolve that advisory landscape into a much, much more client centric, much more respectable in an industry with real deep integrity. So I think it's been beneficial.

John Anderson:    Great. And I'm looking forward to, I do believe that the SEC is looking at that saying, we need to get there. We just can't get there in one fell swoop. We have to do it in multiple middle steps. So the ramifications I think are going to continue in the UK and, and we're certainly growing that our direction, our country is going that direction as well.

Megan McCloskey:    So, when you look ahead the next three months, which essentially puts us at the end of 2020 already, I can't believe I'm saying that what's one key action that you would suggest for advisors that will help set them up for success and growth in 2021?

John Anderson:    Well, I'm going to say go back to what I talked about a few minutes ago, and it sounds simple, and it sounds almost too basic, but having a better understanding of your client base. Having a better understanding, create the personas together because it's amazing to me when advisors do reach out, are they really reaching out with the information that the clients are looking for? If I don't create the personas, if I don't create profiles, if I don't program them into my CRM, if I don't act upon it that way I'm creating noise.

And as soon as I hear noise as a client, I tend to throw it away and discount everything. So if I can start creating these personas, if I can start creating this more fine tuned communication package, the consumer is going to be looking and say this advisor knows me, this advisor knows exactly what I'm looking for. This is the advisor that can help me achieve my goals. I think that the next three months of this year it's going to be focused again much more on this hyper personalization. And if I don't get that right then I'm lost in 2021.

Russell Andrews:    I guess that's a great piece of advice. I was thinking about this as you're talking John, and it would be easy for me to say you need to be embracing technology. You need to be adopting a more strategic technology strategy around driving better engagement. And I think that's all true, but I think that the one other thing that I would really stress the advice you should probably start thinking about now is that wealth transition. I'm fearful for a lot of advice firms that this is going to creep up on them. And as it hits, I think statistics and research has shown that as wealth transitions, the generations advisors often get changed. So it's important to build a strategy that not only protects against what you have, but also really looks to maximize the opportunity for those who haven't. There's going to be a huge pool of wealth up for grabs in the advice market and anything from now until 2030. So build that strategy now think about how technology can help you deliver that strategy, but don't delay.

Megan McCloskey:    Those are amazing points and great takeaways. Thank you both so much for joining us today and taking the time. We look forward to having you again, it was a great conversation, guys.

John Anderson:    Thank you for having us.

Russell Andrews:    Thanks, it's been great.

Megan McCloskey:    Thanks for joining us again. Stay tuned for more conversations with members of our community. Until next time, stay well. And of course we hope you'll meet us back at The Intersection soon.

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