Recalibrating the ‘s&it’ filter for the digital age

It is an all-too-common occurrence these days that a financial adviser meets a prospective client following a significant inheritance, divorce or in the worst-case death of a partner, with the surviving party having little in the way of financial let alone investment experience.

The sheer strength of asset markets in recent years is that almost anyone that owns or inherits property is able to meet the definition of a ‘sophisticated’ investor. As we know, the result is access to a broader range of investments but also the removal of a number of important protections. FASEA’s Code of Ethics has gone some way to improve this, but it remains to be seen how this will be enforced given the Disciplinary Body remains in flux.

The other issue facing inexperienced investors is the influx of information and the continued blurring of the lines between what is and isn’t considered financial advice in the digital age. The digitisation trend combined with stay-at-home orders has seen a boom in direct to consumer (or investor) opportunities.

Whether this is in the form of the growing cohort of ‘finfluencers’ who use platforms like Tik Tok and Instagram to ‘educate’ first time retail investors, or the product issuers seeking to avoid the traditional route and target investors directly via similar platforms, investing has rarely been this fraught with risk.

Extensive education and training requirements have achieved their goals in improving the quality of the financial advice profession. So much so, that the sector has evolved to become a ‘sounding board’ or ‘shit filter’ for lack of a better term to its client base. Gone are the days when advisers were employed by product manufacturers, rather today’s adviser must have a decent knowledge of almost every investment under the sun, including cryptocurrency.

Whilst experts and academics are quick to blame the financial advice industry for the slow rollout of investments like annuities, or the highest quality ETFs/managed funds, the kudos for helping clients avoid the worst of the industry is rarely forthcoming. Yet the influx of products and ‘opportunities’ has never been higher.

Without mentioning the Reddit and retail investor fuelled volatility, not a day passes that I don’t receive an email either from a client or product issuer themselves with a new offer. In many cases, there is a reason these groups are not traversing the typical route, meeting with financial advisers and pitching their products, but instead are seeking to contact investors directly.

The list is endless including everything from private lending and equity investments, to high-risk cryptocurrency ‘deals’, microcap and high growth stock portfolios and in the worst cases outright scams, like a number of bond issues that have been highlighted by the financial media. This is not to mention the boom in phishing, cyber-attacks and spam emails seeking unsuspecting victims.

In almost every one of these cases, a quick call or email to a financial adviser would quickly answer the question of whether they were legitimate and worthy of further consideration. Yet the growing pressure on the industry is in many ways reducing the number of clients advisers can assist.

New regulatory burdens along with multiple levels of compliance that now force advisers to obtain the multiple consents for the same fee agreements, are pulling time away from clients. Combined with the growing pressure to make advice more affordable and piece-meal and the likelihood is that more investments will get around the ‘filter’.

It is clear, to me at least, that the only solution for financial advisers in this era is to leverage technology in any way possible to support more client facing work. I would love to hear from readers what tools they are using to assist in this high pressure environment.

Drew Meredith

Drew is publisher of the Inside Network's mastheads and a principal adviser at Wattle Partners.