Netflix, Fitbits and 'Big Tech': the future of financial advice

By 2030 the majority of financial advisers will offer goal-based advice spanning investment, protection, education, retirement and broader wellness, according to an influential report

Research from McKinsey & Co predicts advisers globally will become more like wealth or lifestyle coaches over the next decade, advising clients on investments, banking, healthcare, protection, taxes, estate planning and financial wellness.

By 2030 the financial services industry will offer hyper-personalised advice to clients via the Netflix model – continuous, data-driven and via subscription. This is one of the major trends likely to shape the financial advice industry over the next decade, according to the recent McKinsey report ‘On the Cusp of Change’.

While largely focused on the North American wealth management sector and disregarding the impact of COVID-19, the report acknowledges many of the same forces and influences already evident in the Australian market. McKinsey senior partner Jill Zucker, a co-author of the report, predicts clients will still want advice delivered by a human, at least part of the time, but that advisers will need to become more like life coaches than investment managers.

“In the next ten years, advisers will gradually shed their role as investment managers and become more like ‘integrated life/wealth coaches’ who advise clients on investments, banking, healthcare, protection, taxes, estate, and financial wellness needs more broadly,” she says.

This more personalised model will be underpinned by data that can already be observed across industries, yet is perhaps most prevalent in entertainment where the “streaming giants” are using customer data to continuously record preferences and offer individual recommendations. And while the ‘Netflixisation’ of financial advice won’t happen overnight, advisers should be looking at how and where they can use data and technology on a more frequent and consistent basis.

Goal-based advice

According to Zucker, this may mean looking at where targeted general advice can work in tandem with more personal advice when onboarding clients and managing the relationship. It also means leveraging both behavioural finance methodologies and data that exists in the adviser’s head today, but which isn’t broadly accessible across the company.

“By 2030, at least 80 percent of advisers will offer goal-based advice, and about half of clients will actively pursue and track bite-sized goals – and this granular goal-tracking will span customers’ investment, protection, education, retirement, and broader wellness,” states the report.

“But success in goals-based advice will also require a dedicated approach to modifying client behaviours and mindsets to help them achieve their goals. To bring goals-based advice to life, and make it practical, intuitive, and actionable, advisers need to leverage behavioural economics techniques such as gamification and community-based competitive measures.”

This trend can already be seen in the skyrocketing growth of fitness tracking devices, which can showcase the psychological power of breaking down large goals, subsequent daily monitoring and tracking, and the importance of validation and feedback.

Some insurance providers currently offer programs incentivising customers to set goals, make healthier choices, track their progress, and gain ‘status’ in the community in exchange for premium reductions and other benefits. The report predicts such programs will become ubiquitous across financial services offerings.

Big Tech

Zucker says the influence of ‘big tech’ will only grow over the next decade, especially as they cement themselves as the core infrastructure providers of the financial services industry globally. And it may only be regulatory hurdles that prevent the likes of Facebook and Amazon from becoming direct competitors.

“It remains to be seen whether ‘ecosystem’ big tech firms – which own end-customer relationships and offer an interconnected set of services – have ambitions to enter the advice space itself or whether they are content to remain service providers to the industry,” she says. “If they do enter, they have customer, technological and capital advantages that could meaningfully distinguish them from incumbents.”

Finally, the research envisages a world where clients join community forums to rate and review advisers, especially as advice becomes commoditised to suit the needs of a wider audience. To date, an adviser’s reputation has been largely shaped by word of mouth, but this is bound to change as the bar for customer experience is set by industries outside of financial services, information availability increases and data-sharing continues to grow in relevance.

“The emergence of transparency and user ratings on adviser performance may lead to a decline in client stickiness; as information and alternatives abound, clients may more readily switch between advisers – although these same trends could encourage better adviser performance that helps retain clients,” concludes the report.