Additionally, the introduction of the Retail Distribution Review in 2013 considerably reduced the number of clients advisers are able to take on.
With professionals focusing on the ultra-high net worths, a growing number of people are being left without advice.
But could technology fill the gap?
What is out there: AI
To answer this question, International Adviser reached out to Brandon Rembe of data aggregation and analytics platform Envestnet Yodlee, a firm developing conversational AI technology for the financial advice market.
According to Rembe, who is senior vice president of products, the technology is going to be like Google Home or Amazon’s Alexa for advisers.
“This technology can help the advisers in two ways,” Rembe said.
“It allows their clients to get answers to questions, without necessarily needing to engage with their advisers. But the adviser would be able to work with this platform as well, being able to ask question and engage with investors.”
Envestnet Yodlee is based in the US, where AI has seen incredible demand from the financial services industry, with Bank of America rolling out its own conversational banking platform, Erica, which is now being used by around five million customers.
The biggest demand for technological alternatives is, unsurprisingly, coming from millennials and the ‘higher earners not rich yet (Henrys)’, who are looking for advice but not necessarily face-to-face.
“They are seeking financial advice but don’t understand why they can’t set up an appointment online or why they can’t get answers to some questions without having to talk to an adviser,” Rembe added.
Implementing technology in financial advisers’ daily practice, Rembe said, “creates a much better overall experience for the end client”.
“They can get questions answered very quickly when they need to, in an automated way, but when they need that extra advice they can talk to someone.”
Envestnet Yoddlee will be rolling out its conversational AI for financial advisers in the second half of 2019 and is looking to expand to all the other English-speaking countries in due course.
What is out there: money management apps
However, many people are also turning to money management apps, allowing them to see all of their finances in one place and receive notifications on possible investment opportunities.
“That is because financial advisers are diminishing and focusing on the ultra-high net worth individuals; and also because of the cost of providing advice,” Samantha Seaton, chief executive of money management app Moneyhub, told IA.
Apps like hers, Seaton said, “could give simple investment advice or take advantage of tax savings, as most advisers don’t see themselves needed in that process”.
That is also because, in her experience, people want more nudges and more advice, and want to know more about their money, but with the advice squeeze spreading through the industry, customers are very likely to miss out.
“What that tells you”, Seaton added, “is that people are perfectly comfortable being helped with their finances even in a computerised fashion.
“When people want to make a fairly big decision, I still think they would like to talk to someone.”
However, encouraging clients to use these types of apps could make advisers’ jobs easier, as they can help with the most basic and straightforward advice in an automated way.
Some advisers have started to take onboard technology developments, with many recommending clients download apps like Moneyhub, and others personalising their own version of the app.
Despite this, the industry is still very much split, Seaton claimed.
“The industry is definitely going towards technology. But there is a 75-25 divide. So, 75% of the market would not be comfortable putting a money management app in the hands of their customers.
“They know deep down they are going to have to, but they’d rather not.”
“I challenge quite a lot of the advisers I talk to,” Seaton said. “I don’t think that getting rid of all the customers that no longer can afford advice is the answer.
“There should be a business model where advisers can service customers who can afford traditional advice, but there should also be another model complimenting the traditional one.
“That would allow advisers to provide a cost-effective way for those clients who can’t afford traditional advice – because they are a growing group.
“And on top of that, I suspect in years to come they will be where the main money comes from, ironically.”
Despite the industry’s overall aversion to technology, Seaton thinks it, in one way or another, will find its way to the customer.
She sees automated advice being the future for the mass market, getting rid of the issue of the cost of advice completely.