Raising the Bar on the Advice Standard

Tim Donahue

By Tim Donahue | May 15, 2018

Whether or not the SEC decides to implement changes to the advice standard, financial advisers must realize that their traditional value proposition has been turned on its head. Advisers once built their business around commissions and product sales, giving advice away for free, but financial transactions have become a commodity. The value of the client-adviser relationship is now in the advice.

There are two things driving this change. First is regulation, as we still work through the ramifications of the 2008 financial crisis. Historically, there’s always been a strong regulatory response to financial crises, and the events of 2008 have led to the increased focus seen today on fee transparency and the changing standards for financial advice.

The other driver is technology. Over the last decade, there’s been a tremendous amount of investment into financial technology, or FinTech, which is disrupting traditional business models across our industry, whether it be banking or insurance or investment management. HTK and Penn Mutual are embracing this change, using technology to create efficiencies in operational scale and improve the customer experience. As a recent example, HTK launched SmartJourney, a digital investment solution providing clients with a contemporary digital user experience, while offering advisers the benefit of scaling down to meet the needs of clients with fewer assets.

For financial advisers, the perceived value of general investment advice and portfolio selection is clearly at risk. Clients can now get that sort of advice from hundreds of different sources, and there are strong arguments that the sophisticated analytical power behind some of these online tools is better than what a human adviser could do.

As a result, it’s critical for financial advisers to be able to deliver a personalized experience, one specific to the client’s individual needs and goals in a way that makes the adviser relationship more relevant, not less. That is the goal with SmartJourney.

Client expectations for service are also evolving, and financial advisers need to change their service models to adapt. Historically, financial advisers would provide all clients with the same level of service, at the same general fee level. This had the effect of forcing clients into a one-size-fits-all model, while at the same time limiting the advisers’ ability to scale their practices. We’ve seen advisers have great success in adopting a teaming model that supports multiple service models, depending on the unique needs of the client, ultimately leading to stronger personalized experiences and increased client retention.

The Future of Financial Advice

So, what is the future for the role of the financial adviser? First, for anyone under the age of 40 considering a future in our industry, the demographics are very much in their favor. With the retirement of Baby Boomers, there will be far fewer financial advisers, yet at the same time there will be more clients with ever-increasing demands for financial advice. Clients are also looking for expert financial advice that involves a comprehensive look at all aspects of their financial lives. That will require careful hand-holding and the expertise in knowing what questions to ask.

Digital advice technology will also continue to evolve, moving beyond today’s goal-based outcomes. My personal opinion is that technology will move to something much more holistic potentially using artificial intelligence supported by enhancements in big data to drive advice. This doesn’t eliminate the need for financial advisers, but instead, financial advisers will have more time to spend on client relationships and increasingly take on the role of behavioral coaches by keeping clients on the right path and helping them make the right financial decisions. Successful firms will be those able to combine technology and the human touch to deliver a comprehensive advice package that clients find invaluable.

Advisers must take a hard look at their practices, making sure that they have the right service models in place. Clients will be demanding more personalized service, along with more personalized advice that is specific to their unique needs and goals. Generalized advice, which clients can get anywhere these days, is no longer sufficient. Advisers also need to look at things like teaming, so they can deliver more flexible and targeted service to clients at different price points and asset levels. And, of course, technology is the final piece of the puzzle since an ever-growing portion of our clients will want to consume advice through applications and other technologies.


  • Terri McDermott says:

    Great insight, Tim!

  • Marilou says:

    Flexible and targeted service should include the OPTION to operate via Direct Business if a client so chooses. It is the most transparent and user friendly manner for some clients. Not all clients opt for digital.Our Pershing platform does not even include rates of return .

    • Marilou, thanks for reaching out and sharing your opinion. I can definitely understand your concerns regarding recent policy changes related direct business processing. If you have a moment, please give me a call to discuss your specific concerns in more detail. Thanks, Tim.

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