AI plus clever partnerships make for intermediary excellence
Financial and risk advisers who want to excel in the dynamic world of financial advising are increasingly turning to technology to elevate their adviser-client interactions and futureproof their advice practices. Technology gives advisers an edge in various areas including cost, compliance and operating efficiency while enabling them to respond to external factors in the macroeconomic and regulatory realms.
Partnering for improved client outcomes
The future of intermediation was up for discussion during the Financial Intermediaries Association of Southern Africa (FIA) 2024 Advice Summit, held in Johannesburg recently. Head of Retail Partnerships at Alexforbes, Gielie de Swardt, closed the full day programme with some thoughts on futureproofing financial advice practices in an environment of rapid change. “The theme of this summit has been on how to partner [with other financial services stakeholders] to give our end clients or pension fund members better outcomes,” he said. “We must guide clients on their journey to financial success [and ensure they] have peace of mind and trust in the system.”
You cannot navigate your advice practice into the future without understanding the past. De Swardt started his talk with some of the key milestones from the domestic regulatory environment. He said the Financial Advisory and Intermediary Services (FAIS) Act set the financial advice industry on a path to professionalisation, with the goal of improved outcomes for consumers. This regulatory overhaul was followed by tweaks to consumer complaints mechanisms; the retail distribution review (RDR); and the implementation of the two-pots retirement solution. Soon, intermediaries will also have to comply with the Conduct of Financial Institutions (COFI) Bill.
Cost, complexities spawn new advising trends
The rising cost and complexity of regulatory compliance has spawned at least two independent financial adviser (IFA) trends. First, it has contributed to the growing number of acquisitions and mergers in the industry, as financial services providers (FSPs) seek the benefits of scale. De Swardt pointed out that many smaller intermediary practices were considering joining networks to grow their businesses. Second, it has prompted the outsourcing of non-advice skills to external specialists. Case in point, the rise of the discretionary fund manager (DFM) to offer better investment and portfolio management services to clients.
Artificial intelligence (AI) was singled out for its huge potential in financial planning and risk management. “Technological enhancements are there to assist advisers to be more efficient and focus on what you are supposed to be doing, [namely] seeing clients,” De Swardt said. To expand on this observation, the presenter suggested that human advisers excelled at managing client behaviours whereas AI was better at tackling complex tasks such as tax structuring, or improving the efficiencies of mundane tasks such as client onboarding. “People deal better with people … [your clients] need to feel empathy and that human connection,” he said. “Technology should be an enabler to make sure that you give appropriate advice to your clients.”
The benefits in being human
Moving into the future, financial advisers will have to think carefully about which functions they perform versus those they hand off to outsource partners or tech solutions. The presentation offered useful insights into the key functions performed by the typical advice business. To begin, an IFA practice spends about 35% of its time in client-facing meetings, with the remainder shared between administrative tasks; compliance reporting; paraplanning; solution implementation; and events and training. Put differently, only a third of a practices’ time is being applied to the function that adds the most value: advice.
The presenter encouraged the intermediaries in the room to think more about the balance of insourcing versus outsourcing to free up more time for client interactions. One clear ‘win’ is to choose a partner that is big enough to provide the infrastructure and technology support that many smaller practices are simply unable to self-fund. “I don’t know about you guys, but I don’t want to run a tech company … so, this is an ideal opportunity to outsource or partner with providers that offer tech,” De Swardt said. The discussion then shifted to the evolving nature of advice books and other developments that could render current practice strategies moot.
The impact of immigration on client books is worth exploring further. A recent study by NMG revealed that the apparent obsession among older clients about emigration has more to do with their children’s rather than their own financial planning needs. “The study shows that two thirds of the children who will inherit your client’s money will probably not remain in South Africa,” De Swardt said. Advice practices will have to figure out how to ensure continuity of advice in a multi-jurisdictional context, or risk a strong fall off in their own books.
Answering a long list of questions
The presenter opined that intermediaries have to answer a long list of questions in order to excel. These include: How you service your current client base? How you handle the generational transition? And how your business sets you up for the change? Possible solutions will come from implementing digital platforms, bringing younger advisers into the business or partnering with a larger firm, or a combination of all three. As the discussion progressed, it became clear that integrating technology into an advice practice was non-negotiable to ensure succession, and to help business owners to achieve a fair valuation upon exit.
Professionalism was another must have. The presenter said that the Certified Financial Planner (CFP®) designation was an industry benchmark recognised by more and more clients. A recent global research study conducted by the Financial Planning Standards Board (FPSB) in collaboration with the Financial Planning Institute of South Africa (FPI) revealed that 94% of people who are advised by CFP professionals trust their advisors and believe they receive the right advice. No wonder, then, that there are more than 5 000 registered CFP professionals in the domestic market today.
Despite the number of planners growing by five times since the early 2000s, the experts reckon South Africa faces a severe shortage if the country hopes to extend world class financial advice to all who need it. Some estimates put the shortfall at around 4 000 individuals. De Swardt built on his presentation by sharing insights from a 2024 paper published by the World Economic Forum (WEF). The paper outlines six key drivers that will shape the future of financial intermediaries, shared briefly in the following bullet points.
- Technology adoption: intermediaries will need to integrate AI, automation and fintech to stay competitive; and migrate toward digital platforms to transform the way services are delivered.
- Regulatory changes: Advice firms will have to navigate the increasing complexity of global regulation, particularly in areas like data protection and cybersecurity.
- Consumer expectations: Tech-savvy clients are demand personalized services; intermediaries will need to adapt to meet higher expectations for both digital engagement and tailored advice.
- Sustainability and ESG: A growing focus on environmental, social and governance (ESG) factors will force intermediaries to incorporate sustainability into their services and products.
- Demographic shifts: Aging populations along with younger generations’ different financial needs and preferences will drive changes in how financial advice is provided.
- Economic and geopolitical risks: Global economic instability, inflation and geopolitical tensions will continue to affect market conditions, influencing the strategies that intermediaries adopt.
Alexforbes is an advice-led business with over R102 billion in assets under management; but its team of advisers will struggle to offer advice services to the 1.4 million retirement fund members the provider services. And thus, De Swardt’s parting question became: “How do we partner with the people in the room [in order to] reach our fund members and make sure that we drive the financial outcomes that they need.”
As thousands of pension fund members near retirement, and thousands more make early withdrawals from their savings pots, South Africa’s IFAs have an unprecedented opportunity to step into the advice gap, and grow their practices exponentially.
Writer’s thoughts:
There are so many variables influencing the ‘future of intermediation’ that it becomes difficult to identify the key focus areas. Based on your understanding of the advice landscape, what will your practice focus on over the next three- to five-years? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.
