“This should be a wake-up call for traditional advisers and intermediaries who have so far resisted the need for change.”
Traditional financial advisers have dominated the distribution of financial products for the past 20 years. This is the case for investments, for mortgages and for protective insurance. These intermediaries were ideally placed to sell these complex products often associated with painful completion paths and complete misunderstanding on the part of consumers.
However, the need for these financial products remained very high across all demographic groups. Many have been left to fend for themselves when it comes to finding the right financial advice and the right education, when making great life choices, like taking out a mortgage. But things are starting to change for the better.
The iron age
Recently there was a generation of entrepreneurs who had grown up in a world where digital and user-centric design had been theorized and taught by all the big tech companies, from Google to Netflix. These entrepreneurs decided to enter the financial intermediary market, with the vision of creating scalable services that would first offer digital, an excellent customer experience, end to end. Their founding principles were about transparency and agility within the market, focusing on accessibility, transparency, user experience and scalability.
The famous Marc Andreessen, VC and entrepreneur of Silicon Valley explained in an article in 2011 why software is eating the world. Although it took a bit of time to reach the space of financial intermediation, software is also occupying this space, at the pace, having started with savings and investments. This was the first segment to experience such a transformation with groups like Nutmeg, Weathlify, Moneyfarm and Scalable Capital. At the time, these players were called “robo-advisors” because they targeted digital self-service services where customers acted alone. Some of them have enriched their offer by providing human advice which has boosted the economy of their unit.
Then it was the mortgage. Five years ago, a number of startups like Habito, Trussle and Mojo transformed the way people finance the purchase of their homes by offering a service that is primarily digital. Given the complexity of the mortgage process, these services have always been fully hybrid, but software and data have been used extensively to improve the efficiency of the delivery model and make life easier for homebuyers.
Finally, protection insurance followed Anorak in the UK and Clark in Germany, successfully transforming the way expert advice on mass market access for life insurance, income protection and critical illness – through a combination of online education, engagement and personalized referrals with human guidance, as the client needs.
The industrial Revolution
We are now entering the next phase of acceleration. Everyone recognizes that the digital brokerage model combining technology, human advice and supported by an ever-growing data lake, leverages software to automate the operating model and represents the future way of selling complex financial products. . Users need this kind of help and education to find the right products and trust the advice provided by advisors.
Over the past month, Tier 1 players with a massive distribution footprint have decided to play the digital broker game. They will massively accelerate the scale-up of digital brokerage platforms in which they have invested or acquired. This is the case of JPMorgan which acquired Nutmeg in June, the combination of the two will bring significant growth synergies to the sector. More interestingly, a company like RVU (Uswitch, Confused.com) which traditionally played in the comparison and financial guidance space, enters the brokerage and advisory world with the acquisition of mortgage broker Mojo.
This should be a wake-up call for traditional advisers and intermediaries who have so far resisted the need for change. Adopt digital platforms to better serve their customers, and that’s the only way forward. This technology also opens the door to a larger pool of potential clients, who may be more likely to be influenced by digital tools before approaching an advisor. With technology, the big players in digital platforms like price comparison shops (and at one point GAFA) are becoming real threats.
For a long time, financial advisers thought robo-advice would fail. In some ways, they were both right and wrong. Hybrid digital consulting is gaining momentum and some of these companies have just received a huge acceleration boost. Remember what happened to P&C insurance brokers when price comparison shops entered their market and came to dominate auto and home insurance distribution.
Overall, it should be remembered that this is great news for the end consumer. As more and more investments are invested in digital brokers, access to financial advice and education will grow and make the mass market even more capable of handling the financial health of your clients, in particular when it comes to big decisions like investing, borrowing or protecting their families.