How financial advice is being transformed for a new generation

Founded in 2011, EV is one of the UK’s market-leading digital financial planning technology providers. The firm has developed solutions to re-engineer the financial planning and advice process to make it more accessible and engaging for everyone, whether they prefer managing their money digitally or talking face-to-face.

In an age where technology is uprooting traditional practices across a countless number of markets, financial advice’s evolution has been no different to many others.

According to Chet Velani, managing director at EV, if we look back over the last decade, there has been a considerable shift to a more customer-centric model of delivering advice with a real focus on improving outcomes for customers.

He said, “If we go back to 2012, we had quite an important moment which was The RDR. Off the back of that, what we had is the removal of commission for advisors, and as a result, there was a material reduction in the number of advisors giving advice in the market.

“In addition to The RDR, we’ve had Consumer Duty recently, and there the focus is really on customer outcomes and the evidence of compliance and value of advice that has been delivered. More recently, we’ve had the FCA’s Thematic review of retirement income advice which looks at the processes between accumulation and decumulation. So quite a lot has happened in this space from a regulatory perspective,” said Velani.

When peering at it from a customer’s perspective, Velani explained that most people are now used to a more digital world. “We have digital-first access in other aspects of life such as banking and shopping. From a customer’s perspective, if you consider advice, since The RDR, the access to advice has fallen quite substantially – in today’s market, there is roughly 10% of the UK adult population receiving advice, so that is quite a small proportion.”

When considering a particular important area of advice – such as retirement – Velani outlines, often this advice is quite complex, due to the fact that at a certain point in time individuals have to all of a sudden start thinking about income needs, rises in inflation and what investments might look like, as well as key matters such as life expectancy and other incomes that need to be considered.

Velani detailed, “Looking at the FCA’s most recent data, across 2023/24 there was about 900,000 pension pots that were accessed, and of that 900,000, only around 31% did so with advice and around 7 out of 10 pots were accessed without advice.”

This, in Velani’s view, is ‘scary’ – as individuals are potentially making an irreversible decision where they take too much income without getting the support that they need.

While the industry has seen several key tech improvements – developments around data collections, CRM systems and growing system integrations – Velani believes the sector is still generally quite fragmented from a customer and institutional perspective.

He said, “If we take stock and think about where we are today, there’s probably several factors at play. Firstly, the expectation and desire from a customer for a digital-first journey is probably the primary ask from a customer’s perspective and being able to have a choice in the type of support that they might get is key. Historically, there’s been guidance or traditional advice, but there was an expectation of not having such a severe boundary between the two. “

From an institution perspective, Velani sees fierce competition across institutions when it comes to protecting AUM and getting AUM through the door. For most financial institutions, he explained, there was ‘always going to be commercial considerations’ of trying to have efficient processes around advice, and this may be to improve their margins and reduce their cost base.

“From our perspective as a business, EV is passionate about helping to solve this problem – predominantly with a digital first solution – where customers have access to coherent and consistent customer journeys with real flexibility in the kind of support that they need and how they choose that support, whilst still supporting institutions with their commercial considerations,” he stated.

Overcoming the challenge

With all this in mind, how can financial institutions overcome such challenges and meet their customer’s needs?

Velani remarked, “Historically, from a customer’s perspective, there’s not really been much choice when it comes to support with their financial planning. Guidance – which is a often a free service and in the format of digital-first modelling tools – can work well for some of the more simple areas but for the areas of greater complexity its not always going to do the job, which is generally the feedback that we get from consumers who use guidance or support tool solutions.”

On the other side lies traditional advice, which often includes sitting down with an advisor in an often more human-led process, which can work very well for those who can afford it. “The big downside with traditional advice is that there is often quite a big barrier to entry for individuals,” said Velani. “If we think about retirement advice, you’re often paying thousands to get things set up and thousands again each and every year – if you don’t have the wealth to justify the fees, you’re not going to really get that advice.”

While these are often the two key routes for such advice, Velani remarked that those institutions who have provided both of these services often see a disconnect between both services.

He explained, “If an individual moves from guidance to traditional advice because they need a little bit more support, they’re often two separate areas of the business and there’s often inconsistent information because different tech providers provide different kit in those areas and there’s also a bit of discontinuity in terms of data transfer.”

These previous challenges are now being faced down with the introduction of digital and hybrid solutions, where the aim has been to automate more of the traditional advice process and reduce the costly human involvement that is involved in some of these areas.

Velani commented, “You might have an online FactFind, and then using that FactFind, there are algorithms that create the recommendations that are delivered, or suitability reports that are all automated and produced online. From the side of the customer, this means that they can potentially have a choice in the level of support that they want, and that level of support will obviously reflect in terms of costs – where more humans are involved the more costly it is. This is what we are supporting our clients with, where we have the digital-first, financial planning solution that provides customers with the flexibility of choice and support that they need.”

What is most key for Velani however is that from the customer’s perspective, there’s consistency of information that they see across all those journeys and the flow of data passes through rather than having to re-enter and re-key the information.

Bank vs traditional advisor

Digital and hybrid advice can often vary for different institutions, such as when it includes a bank or a traditional advisor. How does this differentiate in practice?

According to Velani, there isn’t currently a defined implementation of digital hybrid advice. “In our experience, the level of automation will vary, and it evolves over time, as more automation occurs as more trust is built in the solutions by consumers who go through journeys with them. The adoption of the digital hybrid capability will depend on a business’s customer base, the complexity of the advice being delivered and generally the institution’s own operational model.”

When considering the bank vs traditional advisory business debate, from a bank’s perspective, Velani outlines, they often have a large customer base, and customers will purchase these kinds of products directly from the bank. Furthermore, he remarked that a lot of banks previously had advisors – a trend that is now seeing a revitalisation.

He said, “From that large customer base that banks have, a solution that leverages the digital-hybrid capability more aimed at a mass market is going to work well. The technology can do the heavy lifting in terms of collecting information from individual’s banking apps and then from that data providing a recommendation for them.

“However, if we consider digital advisory businesses, the customer base tends to be the wealthier. They won’t necessarily look to target the mass market, and if they want to support more customers, it is really difficult to scale unless they bring in more advisors.

“The opportunity there is to use hybrid advice to try to automate more of the advice process, to allow advisors to then focus on the areas where advisors really add value such as relationship building and supporting the customers, areas which are a bit tougher to automate – if they can use that automation and hybrid advice to take on some of the manual work that is expensive, they can reduce their costs and serve new customers.”

Regardless of the business type, however, Velani states that the general expectation from customers is that the business needs to have a digital-first solution capability and have the data shared across all areas it is needed and that customers can seamlessly transition across their journeys as well as receiving coherent and consistent information.

The role of AI in advice

The role of AI in the financial sector has evolved over a number of years, with the recent introduction of Generative AI technologies supercharging this evolution. In the area of financial advice, what role can AI play in the delivery of such advice?

Velani remarked that both AI and machine learning hold ‘incredible promise’ for the next phase of financial planning and advice.

“We’re already seeing AI being used in areas such as predictive analytics, helping advisors to make more informed decisions and personalise advice and improve processes,” he said.

Velani gave the example of pretty early in the life of ChatGPT when advisors would use the technology to summarise information and tailor messaging for individuals.

He also raised the ability for AI technology to record conversations between advisors and their clients and then creating a summary off the back of it. He raised another benefit of such an offering, “An interesting use case is advisors recording conversations but then, off the back of it, creating a compliance and due diligence package to ensure that you’ve covered the key questions, and if you haven’t, the software will help you to understand what hasn’t been covered and can be flagged.”

From the perspective of EV, a key use case for AI is around engagement – especially when it comes to substituting and replacing some of the human involvement.

Velani explained, “For example, we’ve got a chatbot that we’ve created and an avatar which sits on top of it. The idea behind that was for us to try and support our guidance and digital journeys to support customers. They can communicate with the chatbot and ask some generic questions about the journey, such as how much this is going to cost me or how long is it going to take me to complete. From here it can be taken to the next level, where they may ask questions around pensions and investments such as the choices I have at retirement, and you get a response back from that, whether it’s from the avatar or the chatbot.”

A third use case that EV has used includes using the avatar to come up with solutions to requests such as receiving a forecast of what their pension pots look like a certain point in time. This, Velani explains, means that if such a forecast doesn’t hit the target the individual is looking for, the avatar can guide the user through how that can be improved through decisions like delaying retirement or contributing more. There are also the cost benefits for a business of not relying on human interaction – with the user able to communicate at any point in the day. Additionally, with more questions asked over time, the questions can refine more to help support customers.

He said, “The key thing is that you do have to be careful what you communicate – financial services is heavily regulated and compliance teams in institutions won’t want to sign off on every piece of comms, so we’ve had to be careful in how we deploy and we try to know the answer to every question that is going to be asked. It’s not like ChatGPT where you can ask a slightly different question and get a completely different answer – you have to be careful when it comes to financial advice.”

The final big opportunity in the mind of Velani surrounds the combination of AI with data that providers might have. “This is an enormous opportunity,” he said. “So where firms have a lot of data on their customers, they can potentially use that as a start point for advice to create recommendations.”

Evolution of financial advice

Looking toward the future, how will the advice landscape evolve over the many years ahead?

Velani said, “From a computational perspective, we’re seeing continuous improvements in technology. Then we’ve got also got the potential with AI – we’re pretty early on in the journey with AI.”

The EV managing director outlined that the firm previously launched a whitepaper which looked at how AI can help with personalisation that comes to journeys. “One of the biggest downsides with digital journeys versus a traditional relationship is the personalisation, understanding and tailoring of communication – that’s what advisers know well and is what is really valuable. However, that’s also the costly element of it.”

This has led Velani to ask: how can AI be used to help create more personalised journeys? “What we looked at for example is personality types – conservatives, strategics, experimentals and actualising – and if we look at conservatives, they tend to like clear designs, facts, whereas with actualising for them the relationship is more important, and working with a human face is going to work well. Strategics like technical information and charts and data and experimentals want to see the journey and the steps they need to take.”

He continued, “The reality is, though, you can have any number of groupings and you can evolve as time goes on. We often put a journey out there and expect it to work for everyone, but the journey is evolving and we’re tweaking and detailing the type of person, how they interact with screens, what area they click, what information, age etc.”

This is the long view of Velani means that combining AI along with technology will help to deliver a more hyper-personalised journey.

“Whilst this transition to digital-hybrid advice might sound a little scary, it isn’t going to happen instantly, it’s going to take time,” he explained. “You need to build trust in the journeys and get feedback and build trust in the algorithms.

Overall, Velani believes there is a fantastic opportunity for financial services if the industry can take it.

He stated, “If we get this right, it could really be a win-win from an institution, customer and regulatory perspective. Institutions can look to protect and grow assets, increase revenue by supporting more customers or look to reduce their cost base or improve productivity and efficiency.

“From a customer perspective, there’s a large number of individuals who can’t get the support they need, so this will help us build out capabilities where individuals have more choice and ability to access advice cheaper, which can only be a good thing. From a regulatory perspective, what we can get is more consistency and also more individuals making better choices when it comes to their finances.”

He concluded, “If we get this right, we have a fantastic opportunity for this to be a win-win for everyone.”

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