Russell Andrews and Russ Kliman: Should financial advisers replicate the FAANGs?

The Covid-19 crisis has exacerbated and accelerated a trend that was already beginning to take hold in the financial advice market: the need for financial advisers and wealth managers to digitise and hyper-personalise their engagement with consumers.

Consumers increasingly want their financial advisers to meet them where they want to be met, with highly personalised and customised engagement. Prior to the current crisis, financial advisers were dipping their toes into the digital waters.

However, the advent of remote working has sharply focused everyone's mind on the immediate need for improved and digitised engagement. Essentially, Covid-19 forced everyone into the deep end overnight.

It boils down to the same question: how easily can financial advisers reorient themselves around end-investors to deliver hyper-personalized, digital experiences that are holistic in nature? And, more importantly, how will they obtain a full understanding of their customers, so they can deliver truly relevant products and services and customised experiences while building deep customer relationships?

The answers may lie within another industry. FAANG firms (Facebook, Amazon, Apple, Netflix and Google) achieve exactly what those in the financial services are seeking and could provide a useful future guide for financial advisers. The FAANG businesses have truly built a full understanding of their customers and, accordingly, have mastered the art of delivering relevant products and services that build entrenched, loyal customer relationships.

So, the question then becomes whether financial advisers can employ many of the tools that the FAANGs have built their businesses around. For example, AI-enabled machine learning and natural language technology, as well as synthesis of diverse sets of structured and unstructured data can provide better customer insights and highly personalised financial engagement.

There are three major challenges that the financial advice industry will need to overcome if it is to emulate the FAANGs in delivering hyper-personalised, digitised engagement with consumers.

The FAANGs provide entertainment or discretionary spending services where there are inherent reasons for consumers to engage with them. Consumers do not get the same sense of enjoyment from financial conversations or immediate reward from financial products.

In fact, it can actually be quite uncomfortable discussing finances, and investing comes with many natural fears of losses or the pitfalls of making the wrong choices. This is a critical challenge that advice firms must tackle head on - how to make it interesting, comfortable, rewarding and, dare we say it, even fun.

Technology and behavioural psychology need to come together to equip advisers with the ability to deliver financial advice in different, more engaging ways.

The business models that the FAANGs have built differ in some crucial aspects: they understood the need to not simply deliver a product or service, but to leverage their customer engagement. They all built-in conjunction with their core services - the ability to capture data and behaviours and analyse, predict and learn from the data.

Financial advisers, if they are to be successful in the digital world, need to recognise that it is not just about the functional elements of the solution they provide, but how the solution learns from the interactions and data to deliver relevant, personalized and contextual insights to the investor.

Financial regulation provides another hurdle. Regulations can often create a counterbalance to the good work undertaken to strengthen customer engagement. With review and approval requirements for pre-sales materials, heavy disclaimers and cost transparency, the process can be laborious.

The information overload can also ultimately dissuade customers from engaging. Other industries do not have these challenges to this extent. So, advisers need regulators to consider the unintended consequences of the principled regulation.

Technology can play an important role in changing the regulation consumption model based upon the things with which customers feel comfortable, such as gamification, and knowing the boundaries of those comfort levels and preferences by intuitively using data-gained insights.

Ultimately, financial advisers should be thinking about how to become more ‘FAANG-like' for consumers' benefit. The challenges are not insurmountable, and the future of the advice industry could depend on overcoming them. It will require careful planning, but the firms who approach it in a thoughtful, realistic way have an excellent opportunity to reap some serious rewards.

Russell Andrews is head of solutions, UK, Europe & Asia, Asset Management Distribution at SEI and Russ Kliman is global leader at SEI Ventures

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