The conservative financial advisory sector was controlled by big, well-established firms that catered mostly to the wealthiest members of the customer.
The World Economic Forum and Accenture’s report, The Future of Financial Advice, examines the evolving landscape of financial advice in a fragmented and complex market, highlighting the impact of rapid developments in technology, changes in the population, and evolving customer demands.
The article discusses six trends in the financial advice market and suggests ways for policymakers and regulators to ensure access to reliable financial advice.
1. The need for innovation is driven by shifting demographics
Financial advice, which covers future investments, debt management, retirement planning, and inheritance, must adapt to changing demographics and life expectancy to foster lifelong financial resilience. Research indicates that only half of US and EU citizens believe they have enough retirement funds to comfortably live in retirement due to longer lives, economic changes, and pension scheme changes.
The report reveals that younger generations, particularly women and people of color, are entering the financial services market earlier than previous generations, largely due to student loans. Trust in financial services is declining, with financial literacy low, particularly among Gen Z, Millennials, and Gen X. To restore trust, financial institutions must accommodate a diverse marketplace by recruiting diverse teams and developing effective communication approaches.
2. The importance of holistic financial well-being
The report suggests that holistic financial well-being requires more than just point solutions like car insurance or pension plans. It suggests that people seek comprehensive, unbiased advice on their financial needs, supported by long-term plans for major life events, and seek one-stop shops for this advice.
The report suggests that a holistic approach to personal finance can not only increase savings and investments but also have psychological benefits. Research in the US indicates that this approach reduces vulnerability and worry about personal finances, enhancing overall well-being and work productivity. Banks should leverage this opportunity by implementing technology for tailored advice and education.
3. People anticipate 24/7 digital access and highly customized services
Over three-quarters of Americans now expect personalized interactions and instant access to their accounts and financial products. Technologies like “robo-advice,” which provide automated financial planning and investment services, could bridge this gap and assist with day-to-day financial management while referring bigger life decisions to human experts.
4. Clear and equitable pricing reduces obstacles
Consumer preferences and policymakers’ efforts for transparent pricing structures have led to innovation in financial institutions’ business models. In the US, 9 in 10 households prefer fee-based advice, with advisers’ share growing from half to 75% in the last eight years. In Europe, commission-based selling is higher, but research shows over two-thirds of European adults don’t trust financial advice.
Transparency is crucial for Gen Z and Millennials, who prefer independent and cost-effective financial advice. Banks should put a high priority on providing financial education and advice on their own, incorporating automated, multichannel, and human help into their business models, and providing varying prices for various strands.
5. AI and technological innovation
The rise in customer expectations and emerging markets necessitates the deployment of technology for increased productivity, cost reduction, market access, and personalization, while also simplifying financial planning through interactive platforms.
AI will automate routine processes, allowing advisors to focus on personalized consulting. It provides real-time insights and automatically generates tailored advice. This digitalization could lower costs and barriers for low-income households and young people. However, it requires financial services firms to modernize their technology stack to meet these expectations.
6. The “finfluencer economy’s” inception
The influencer economy, now worth $24 billion, is playing a crucial role in financial education and advice, particularly among Gen Z and Millennials. With 64 million followers, influencers are perceived as more relatable and inclusive than banks, filling gaps that the established financial industry has not been able to fill. The forum reports that the top 10 ‘finfluencers’ have 64 million followers.
The influencer economy, now worth $24 billion, is playing a crucial role in financial education and advice, particularly among Gen Z and Millennials. With 64 million followers, influencers are perceived as more relatable and inclusive than banks, filling gaps that the established financial industry has not been able to fill. The top 10 ‘finfluencers’ have 64 million followers, according to the forum.
