The next generation of financial advice requires sweeping change as advisors and regulators adapt to a digital future, according to a new report from the C.D. Howe Institute. In “Next-Gen Financial Advice: Digital Innovation and Canada’s Policymakers” author Chuck Grace recommends policymakers get out ahead of the coming transformation in financial advice by clearing regulatory hurdles to change.
“Firms are dealing with a looming perfect storm,” said Grace “Fee compression, shifting demographics, unrelenting regulatory changes and an erosion in the number of human advisors as advisors who are babyboomers retire. In this context, technology should be viewed as a savior, rather than a threat.”
The report provides a series of steps for regulators and policymakers that will improve innovation for incumbents and start-ups alike, all while providing an enhanced customer experience in financial advice. The report also dispels several myths about so-called “robo-advisors” and what’s needed to facilitate a higher level of digital adoption.
The report finds that the next generation of digital advice offers an opportunity for stronger client impact. The next generation of financial advice will see human advisors complemented by digital collaboration through technology - most technological change will augment the work of human advisors – not take it away. Further, while current regulations per se are not a barrier to this next generation of advice – current regulatory practices are. Just how much the industry will be disrupted matters because wholesale disruption of our financial services comes with wholesale economic risk.
The report recommends policymakers take the lead and get in front of the innovations in order to understand their full implications:
- moving swiftly towards open banking and improving on the benchmark set in Europe;
- breaking down regulatory silos to allow data mobility in furtherance of stronger client outcomes;
- updating advisor proficiencies for a new normal where technical skills are automated and behavioural skills are require;
- de-risking the decision to innovate – for start-ups and incumbents alike.
“Regulators are licensing advisors for a world that no longer exists,” said Grace. “Policymakers must play an important role in the transformation towards the next generation of financial advice, and what we don’t have is much time.”
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.
For more information, please contact: Chuck Grace, member of finance faculty, Ivey School of Business; Laura Bouchard, Communications Officer, C.D. Howe Institute: Phone: 416-865-9935; email: lbouchard@cdhowe.org