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Thinking about new advice technology? Ask these questions before taking the plunge

Peter Panigiris

Technology can be part of the solution to the prohibitive costs of doing business advisers are facing, but proper due diligence is needed or the benefits may fail to materialise, writes Midwinter’s Peter Panigiris.

Interest in financial advice is strong, with a staggering 42 per cent of Australians saying they are open to purchasing it, according to FSC research. Yet despite the level of interest, the same research showed that only 26 per cent of Australians actually purchased financial advice.

There is strong demand for financial advice, but it is a superficially enviable position that hides a deeper paradox: many advisers are leaving the industry rather than tapping into this unmet demand. Others are consolidating their operations, focusing on a fewer number of higher-value clients.

The challenges are well known; rising regulations, higher educational requirements, pricing pressure, and reputational damage following a royal commission. The answers are also no secret; more streamlined regulations, a clear client value proposition and productivity-enhancing technology.

Proven technology is an important area that advisers can directly control to support their client engagement and reduce cost to serve.

Great execution is the key to creating a more efficient foundation that can attract a wider range of profitable clients. Here are five key questions to ask of any technology vendor.

1. How fast and accurate are the advice calculations?

Many potential clients who want financial advice think it’s too expensive or inaccessible, according to the same industry research. A great advice platform should automate most of the heavy actuarial calculations that underpin advice.

This improves productivity and leaves more time for advisers to understand clients’ true needs. People rarely make decisions based on a rational assessment of numbers, they make decisions based on their feelings. A good adviser understands how to interpret them.

An advice platform should be able to perform multiple calculations showing the impact of different client options accurately and quickly. Is it better to save more for retirement or pay off the house? Should I prioritise my short-term goals above my longer-term retirement goals? Is it worth saving more super if it reduces my age pension payments?

These are difficult calculations where technology should do the heavy lifting: an effective solution needs to calculate results quickly and presents these in a consumable way to clients.

2. Does the solution drive improvements in financial literacy?

Some people seek advice about their finances because they don’t have time to manage it. Far more seek financial advice because they don’t understand it.

About 8.5 million (or 45 per cent) of Australian adults are unable to demonstrate an understanding of basic financial literacy concepts such as interest rates, inflation and risk diversification, according to 2020 UWA Business School analysis.

The best financial calculations count for little if clients can’t understand the information. To reach their goals, advice needs to be presented in a simple and intuitive way. That means building customer-centric design into advice technology because it’s as much for clients as it is for advisers.

A good test is to show some advice produced through the platform to someone who doesn’t work in the industry – how much do they understand? Every basic component you must explain drains your efficiency.

While education will always be part of an adviser’s role, some advice technology platforms can also help.

About 28,000 clients belonging to more than 90 different AFSLs accessed the AdviceOS client portal over the 12 months ended 30 April 2021, with half of these generating a report through the client calculators. This shows that clients are interested to access digital financial help or self-directed advice, a great way to help get them thinking about and improve their financial literacy before reaching out to an adviser for more comprehensive advice.

3. Does it make compliance monitoring easier?

There is a growing realisation among the public that increased advice regulations are not translating to better outcomes for consumers.

Two in three consumers support simpler financial advice, reducing paperwork and complexity, and lower cost (provided consumer protections are not eroded), according to the FSC research.

But while regulation may eventually be more streamlined, it will always be rigorous enough to present a challenge for advice practices. Technology is crucial to meeting this challenge and serving more clients.

Dealer groups such as Wealth Today estimate their 120 advisers have saved an estimated 40-50 hours per annum of manual processing with technology that makes it easy to comply with opt-in renewal notices and annual fee disclosure statements. These are the benefits on offer.

4. Cloud-based technology versus desktop?

Working from a desktop or on paper is a longstanding habit across offices everywhere. But it also creates operational risks: paper gets lost or misfiled, computers can go missing and hard drives fail.

Desktop software, or manually updated Excel spreadsheets, inevitably fall behind as regulations are updated (such as new contribution caps), and as new cyber-security flaws are exposed in old software versions.

Cloud-based software is continuously updated with new regulatory and security patches, ensuring all advisers have the latest technology.

This also creates an ongoing backup. Key files, such as SOAs, are never lost and are easily searchable. That’s essential for high-quality service as well as compliance and business continuity.

5. Is support there when you need it?

The fallout from COVID-19 has underlined the need for every business to have a backup plan for when disaster strikes. While a global pandemic may be a one-in-100-year event, other crises are far more common – like tech issues.

When technology underpins the core operations of your business, it should offer comprehensive support and training. Does your technology vendor have an online 24x7 help centre and ongoing local support and training?

As borders continue to reopen, people are making plans for nights out and trips away from home. Although the advice industry is a long way from a holiday, maximising the potential of technology gives advisers the chance for a much-needed break.

Peter Panigiris, business development manager, Midwinter Financial Services