6 trends shaping financial advice in the fintech era

The financial advice industry was considered conservative, dominated by large, established organizations mainly focused on the wealthier end of the financial clientele.

Today, the landscape couldn’t look more different. Rapid technological progress, demographic shifts and changing consumer expectations have profoundly transformed the sector. A new report from the World Economic Forum and Accenture, The Future of Financial Advice, explores how the face of financial advice is changing in a much more fragmented and complex marketplace.

It highlights six trends characterizing the financial advice marketplace and how policymakers and regulators can guarantee access to sound and trustworthy financial advice – at a time when financial literacy is more important than ever.

Financial advice typically follows a person throughout their life, ranging from investing into the future through managing debt to planning for retirement and inheritance.

With demographics shifting as life expectancy increases, financial advice must adapt and enable people to build life-long financial resilience.

Longer lives, changing economic conditions, and changes to state pension schemes could leave older people with insufficient retirement funds. Recent research shows that only around half of US Americans and EU citizens feel confident they have saved enough to live comfortably in retirement.

Younger people enter the financial services market earlier than previous generations, not least due to student loans, the report finds.

The makeup of investors is also changing, especially in the US, where women and people of colour are getting more involved than in previous generations.

At the same time, trust in financial services has been in decline, and as the Forum finds, financial literacy is low, especially among the youngest generations (Gen Z, Millennials and Gen X).

To claw back trust, financial institutions need to accommodate a more diverse marketplace. This means recruiting more diverse teams that can relate to these new audiences and develop better approaches to reaching and educating them.

What’s needed is more than just point solutions – a car insurance policy, a pension plan – but advice and education to achieve what the report terms “holistic financial well-being”. This is when a person feels secure in meeting current and future financial obligations.

The Forum finds that people seek out one-stop shops that can provide comprehensive, unbiased advice on all their financial needs, supported by long-term plans around major life events.

This holistic approach will not only contribute to building up more savings and investments, but it also has psychological value. The report points to research in the US showing that it can make people feel less vulnerable and worried about their personal finances, with a significant impact on overall well-being and productivity at work.

Banks must capitalize on this opportunity by implementing technology such as mobile apps and websites to offer more tailored advice and education.

This personalized approach is increasingly becoming the default expectation. More than three-quarters of Americans now see personalized interactions as the standard, the Forum reports. Along with personalized advice, they also want instant access to their accounts and financial products.

Technologies like “robo-advice” – a digital platform providing automated, algorithm-driven financial planning and investment services – could bridge that gap. And help with day-to-day financial management while referring bigger life decisions to a human expert.

Changing consumer preferences and policymakers’ efforts for more flexible, transparent and fair pricing structures have already spurred innovation in financial institutions’ business models.

In the US, close to 9 in 10 households prefer fee-based advice, shunning commission-driven financial consulting. Financial advisers’ share of fee-based income has grown from just over half to 75% in the last eight years. In Europe, there is a higher share of commission-based selling. The Forum points to research that more than two-thirds of European adults don’t trust the financial advice they receive.

Beneath those top-line numbers, transparency is particularly favoured by the two youngest generations, Gen Z and Millennials, who are more inclined to switch advisors to reduce fees.

Banks must, therefore, prioritize delivering financial advice and education not only more independently but also more cost-effectively. The financial sector has an opportunity to integrate human, multichannel, and automated advice into its business models, along with differentiated pricing for the different strands.

As customers' expectations rise and new markets emerge, deploying technology will be vital to increasing productivity, lowering costs, and enabling greater access to markets.

The interactive nature of digital and mobile platforms also enables greater personalization and can help demystify financial planning.

Generative artificial intelligence (AI) will play a key role, helping automate many routine processes and enabling advisors to dedicate more time to personalized consulting. At the same time, AI can simplify the advisor’s work by providing valuable insights in real-time and automatically generating tailored advice.

Greater levels of digitalization and automation would also lower costs and barriers for young people or low-income households to access financial advice.

However, it can only live up to these expectations if financial services firms commit to modernizing their technology stack.

Hardly any industry sector has escaped the impact of social media, and financial services is no exception.

The influencer economy is now a $24 billion industry. And while the world’s top 10 financial institutions have amassed 10 million followers between them, the top 10 ‘finfluencers’ have 64 million followers, the Forum reports.

Influencers are now playing an essential role in financial education and advice, filling gaps that the established financial industry has not been able to fill, especially among Gen Z and Millennials. Compared to banks, influencers are perceived as more relatable and inclusive and not ‘salesy’.

That said, they are not always qualified financial advisors. Their advice can therefore lack risk management considerations, and they may need to be more open about their affiliations and how they monetize their activities.

Nonetheless, finfluencers are stealing the march on traditional financial services providers by providing financial education and improving access to traditionally underserved communities. The financial advice industry must continue updating its business models to close this gap and regain trust by making its services available to a much broader community of investors.