Hybrid Advice: Risk & Compliance

Chris Martin

Hybrid Advice: Optimising client support in the midst of a crisis

The growing pressure on advice firms to consider how best to use digital within their operating models is not new. Efforts to attract the mass market, expectations of younger investors and the need to reduce costs have all formed pressures to date. Many firms have been reluctant to adopt technology due to uncertainties around client trust and losing relationships gained through face-to-face meetings.

The Covid-19 pandemic has caused a shift in the general population’s view of adopting technology within their day-to-day lives. The use of video calls and digital apps has become the new normal, used for social events and family gatherings across all generations. There has also been a growing interest on the health of savings and investments as uncertainty grows around the lasting economic impact of Covid-19.

The level of uncertainty around this “new normal” has forced firms to consider adapting their business models to a socially distanced society if they want to survive. There is value in drawing on ideas from firms across industries whose business models have been recognised as delivering excellent client experience prior to the pandemic and who have also been resilient to Covid-19. This is no different for advice firms and could also pose a prime opportunity to transform the advice industry and bridge the advice gap.

Some key areas of focus for advice firms considering a digital hybrid advice model include:

  • Opportunities to use technology to make productivity gains and reduce the cost to serve
  • Long-term impacts of responses to Covid-19 on their operating model
  • How to capitalise on technology to simplify historically complex areas such as risk and compliance

Firms must consider both the opportunities and risks which adopting technology such as Video Conferencing, Natural Language Processing and Artificial Intelligence can bring. The problem of generalist tools not suitable for the advice journey is no longer an issue. There has been a great amount of innovation in this space with firms such as Aveni developing solutions specifically for financial advice firms. Actions taken now will create winners and losers in the industry and it is time for advice firms who have historically relied on face-to-face client meetings to act now and create new opportunities.

Risk & Compliance

At a time where future revenue streams look less certain, the cost and complexity of compliance is a material challenge for the financial advice industry. If we have learnt one thing from previous crises, market volatility and recessions will only make this worse, leading to an increase in complaints, claims and regulatory intervention.

What can advisers do to address this?

The widespread adoption of Video Conferencing (VC) and the transition to a hybrid advice model creates a major opportunity to transform risk and compliance. VC is a gateway into cutting edge technologies such as Machine Learning and Natural Language Processing that can enable the automation of compliance processes. Here we will explore how adopting a hybrid advice model can transform risk and compliance:

Increasing consistency and reducing risk in the advice process

The FCA re-iterated in its 2020 Sector Views that the risk of unsuitable advice remains a sector priority. Although there is acceptance that firms must focus on critical activities in light of Covid-19, it is clear that suitability of advice is still a priority. There are options to deploy Artificial Intelligence (AI) alongside VC to record client conversations, convert speech to text and provide searchable transcripts of conversations. This can help advisers evidence the suitability of advice, resolve disputes and potentially reduce the cost of claims in the future.

Real time risk management

Firms can use client risk analytics within a hybrid advice model to help advisers assess client vulnerability, conduct concerns and suitability within each client interaction. Recent advances in speech technology allow this capability to be deployed live. During conversations with clients, AI assistants can flag risks to the adviser and prompt key questions to ask, for example, where a potential vulnerability needs to be resolved and recorded. This is then captured in an automatically generated risk report and stored within the client relationship management system.

Client insight and consistency of outcomes

Technology used within a hybrid advice model can help advisers understand client needs on a deeper level. The capture, aggregation and analysis of all conversations allows the vertical assessment of interactions across a client bank, providing insight into key themes and areas of focus within client conversations. This creates actionable management information that can help understand client objectives to a greater extent and allow them to tailor their approach to decision making.

Implementation

The benefits of utilising technology to reduce risk, ensure compliance and create efficiencies and cost savings are clear, however this must be carefully implemented to ensure there are no unintended risks or consequences. Ways to reduce this risk include the implementation of policies, procedures and controls with specific focus on areas such as Data Security, Cyber Crime and GDPR.

 

Alpha FMC are experienced in supporting firms develop and implement hybrid advice models and have an established Risk and Compliance Practice. Please contact Chris Martin for more information. 

Please also see below a link to our first and second article in the Hybrid Advice series.

About the Author

Chris Martin
Chris Martin
Senior Manager

Chris is a Senior Manager at Alpha in the Risk, Regulation & Compliance practice with more than 13 years of investment industry experience across the FSA/FCA, in-house roles and consulting. Chris spent 4 years at the FCA, focusing on the supervision of asset managers and advisers, before moving into consulting and has led many compliance, risk and regulatory change projects.