"The advent of Consumer Duty has coincided with some serious technology developments at a macro and micro level, which will revolutionise this sector."
The great expectations of Consumer Duty will be felt by all financially regulated businesses, but for those in the advisory and brokerage markets, where the customer is key but margins are being squeezed, the responsibility can be daunting.
Personal interaction and relationship nurturing have always been a central tenet of the brokerage sector. In many ways Consumer Duty chimes perfectly with this commitment to the customer and relationship, but the expectation and requirement to prove that best interests are being met can, and will, bring challenges. However, there is an opportunity here, and the advent of Consumer Duty has coincided with some serious technology developments at a macro and micro level, which will revolutionise this sector.
The release of large language models (LLMs) like Bard and GPT has brought a technological tectonic shift, bringing AI into the consciousness of pretty much everyone on the planet. LLMs are going to fundamentally change the way people work over the next four or five years, with a strong shift already being witnessed in financial services.
The advice market has been comparatively slow to adopt technology over the years versus other financial services providers, resulting in highly manual processes and a high cost to serve. The combination of persistent productivity challenges and the fact that the UK market is so underserved - with 20 million people currently in the advice gap - highlights that there is now a clear economic opportunity, as well as regulatory requirement, to consider AI-based technology. If AI is used effectively it will bring about a productivity revolution and fundamentally change the economics and the approach of financial advice.
The increased regulation and protection requirements are driving more advice firms to record every call and interaction through existing technology solutions. This allows for easy transcription and ability to automate risk and vulnerability identification. If you then incorporate Natural Language Processing capabilities or LLMs such as GPT, this offers unprecedented support for advisers and their clients and adds greater value into the workflow. For example, if you're an adviser you will be able to see 2-3 times more clients whilst delivering an equivalent or better service.
Consumers want to speak to people when making important financial decisions, but the administrative burden is already becoming too great and that inhibits the adviser or broker’s time significantly, which decreases client interaction and fee-earning potential. With the current tools available a wide range of tasks can be achieved including attending meetings, writing investment reports, auto-populating CRM systems, creating tailored customer emails and significantly speeding up time to execution with instant compliance checks.
This productivity revolution all revolves around a ‘human plus’ approach. AI adoption to date has been quite niche. Larger companies have fraud, cyber or AI type analytics in place. For example, AI looking at customer experience or automating compliance monitoring. But where we are going now is more general, and AI assistants will be part of the everyday life of financial services, significantly reducing admin burden. Humans will become the validators and reviewers of the advice that is being driven by machine outputs. This will ultimately allow the main focus for advisers to be on relationship and customer support.
The approach must be transparent however, and customers and advisers need to know that the information is reliable, and bias is removed to ensure the trust of those deploying it and the consumers engaging with it. Risk management will remain absolutely essential and even with the appropriate guard rails in place, it is imperative that the research and development to manage these risks is really emphasised and undertaken.
Increasing regulatory requirements need not be seen as a burden. In fact, never has there been a better opportunity through technology to align the needs of the customer and the climate of compliance with the capability of the adviser.
