Gain an edge by embracing technology

Not only does adopting digital tools lead to happier clients, it also results in greater profitability and success for advisors

By: David Reeve October 15, 2018
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Many pundits have been busy offering their insights on how the financial services sector has changed in the decade since the global financial crisis. The Washington, D.C.-based Brookings Institution shares a widely held view that the global financial system has become more resilient and investors have become much wiser. Even though Canada avoided much of the fallout of the crisis, our country has been caught up in the wave of regulatory changes that swept across the globe. Most of these regulations are designed to protect the investor and improve trust in the client/advisor relationship.

So, how has this decade of change impacted advisors, clients and the relationships between the two parties? The regulatory environment has forced the financial services sector to move its compliance processes to a new platform. New regulations such as the second phase of the client relationship model (CRM2) and Stage 3 of the point-of-sale disclosure regime for mutual funds (POS3) have resulted in major investments in technology among dealers and advisors in order to be compliant. As a result, many advisors have new technology tools at their fingertips to ensure that clients are served more effectively in a compliant manner.

Regulation has been an impetus to adopt technology and build digital relationships with clients. But what has been the impact of technology adoption on the advisor’s practice? A recent study from U.S.-based Fidelity Clearing & Custody Solutions revealed that “tech-savvy advisors (e-advisors) were outpacing their peers across a myriad of factors including [assets under management (AUM)], compensation and client satisfaction.” The study also determined that “technology usage is a key factor in client satisfaction, helping to drive greater transparency, collaboration, loyalty and referrals.”

The study further quantified the advantage e-advisors have: 42% higher AUM and 24% higher commissions. This means that although the increased regulatory environment has introduced some challenges for dealers and advisors, those that have adopted technology to improve client services are better positioned to grow their business and compensation.

For investors, the past decade of regulatory change has resulted in greater product disclosure. The goal of CRM2 and POS3 was “to ensure that the increased transparency about investment costs and performance and the provision of the Fund Facts documents are indeed helping investors make more informed investment decisions.” stated Louis Morisset, chairman of the Canadian Securities Administrators, in a 2016 statement announcing a multi-year project to measure the impacts of the two disclosure regimes on investors and the industry.

In fact, a survey of mutual fund investors conducted by Pollara Strategic Insights for the Investment Funds Institute of Canada in 2017 highlighted several benefits of increased disclosure that “show steady increases in several measures that point to higher levels of investor knowledge and engagement.” This includes investors’ awareness of fees and higher levels of advisor and investor engagement.

As we look to the future, the financial services sector now is looking at the introduction of new client-focused reforms, which include amendments to “know your client,” “know your product” and suitability requirements. Although this regulatory proposal is in its early days, there’s little doubt that new technology will be required to maintain compliance in the future. Advisors who adopt and leverage this technology to serve clients better will continue to hold a lead.