Re-imagining Financial Advisory in a Virtual Setup: Transforming the Client Experience

This article was co-authored by Aadarsh Raghavan, Ashutosh Ojha and Nikhil Jain.

The wealth management (WM) industry is undergoing a transformation driven by changing client demographics, technological advances in AI / ML, and enhanced regulatory norms. The pandemic has highlighted the importance of digital tools for engaging with clients remotely. In recent times, retail investors have increased their direct participation in the securities market aided by 1-click trading apps, zero commission charges, and flexibility to trade in fractional shares. However, most of these investors lack access to trusted financial advice. Such an advisor can guide the investors towards their financial goals and also help them navigate stressed market conditions.

Retail investors in the mass-affluent segment ($100k to $1mn net worth) possess around 40% of global wealth. However, nearly half of those wealth owners do not avail of the services of a financial advisor and remain self-directed. Amongst those who do have access to financial advice, their client satisfaction levels vary.

Re-imagining Financial Advisory

Mass affluent clients have a smaller ticket size and hence have remained outside the purview of traditional WM firms. Traditional financial advisors can only support a limited number of clients as they offer high-touch services and hence focus on high-revenue generating clients in the high net worth / ultra-high net worth segments. With the increased participation of the mass-affluent segment in securities investing, we believe that wealth management firms must develop suitable service offerings aimed towards them.

Virtual Financial Advisory (VFA)

VFA is one such option where firms can re-imagine the traditional WM business model by combining next-gen digital tools with the trusted guidance of human financial advisors. VFA has the following key features and service offerings:

Financial advisors can leverage digital tools and enablers, listed below, as part of a VFA setup to eliminate low-value work and manage a greater number of clients by focusing purely on value-added activities in a remote set up.

How is Virtual Financial Advisory different?

VFA establishes a digital relationship between the client and the financial advisory without compromising on the quality of advice. It offers services that are differentiated from Robo-advisory and traditional financial advisor-based models, as highlighted in the comparison table below.

Although WM firms have been offering phone-based advisory services for some time, firms that offer VFA can transform their clients’ experience by providing personalized, seamless, and integrated services at low costs, allowing firms to expand their client base within the mass affluent segment by delivering advisory services at scale via digital channels. The digital tools and enablers can also be extended to other client segments to enhance the overall client engagement across the firm resulting in 3 key benefits – enhanced client engagement, increased AUM, and reduced client attrition.

Further reading:

• https://hbr.org/2019/01/the-state-of-socially-responsible-investing
• https://www.europeanbusinessreview.com/seven-game-changing-trends-in-wealth-management-in-2020/
• https://investorjunkie.com/investing/online-financial-advisors/
• https://www.oliverwyman.com/our-expertise/insights/2020/jun/wealth-management-industry-analysis-2020.html
• https://www.ft.com/content/4e05fd82-fa44-4137-91f8-1fcf341fccad
• https://www.schwab.com/intelligent-portfolios-premium
• https://www.mckinsey.com/industries/financial-services/our-insights/banking-matters/on-the-cusp-of-change-north-american-wealth-management-in-2030
• https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/The%20virtual%20financial%20advisor/The-virtual-financial-advisor.ashx
• https://www.economist.com/finance-and-economics/2019/12/18/wealth-managers-are-promising-business-class-service-for-the-masses