The popular Know Your Customer concept is at the heart of client-centred financial advice and serves as an important guideline in the latest legislation. As a result financial institutions have been greatly occupied with collecting various data on their individual clients. Unfortunately they still do very little with those data. Surely this cannot be the intention of the Know Your Customer concept.

Three levels

At present, financial institutions provide insight into the value and the allocation of the financial product, and sometimes in the value development and the risk involved. One can recognize the following three levels in giving information and guiding clients: 

Level 1 is to provide integral insight into the products of the financial institution. This means that an institution provides a risk and return analysis of all financial products administrated at the institution collectively, not simply an analysis of a single product. 

Level 2 is for the institution to include all financial products of a client in the analysis, thus including those at other financial institutions. 

Level 3 is that the institution looks at the complete financial position of the client and consequently includes things like a (second) home, a company and other assets and debts as well. With this last step we reach the level of financial planning. But to complete it, we still need more information.

Providers who take on the responsibility to give an all-encompassing advice will, in my opinion, play the most important role.

Product provider or trusted advisor?

Legislation and regulation demand that you use all the information available to you. Technology will help here: it is becoming increasingly easier to gather data and to offer the consumer an advanced overview of his financial situation. Legislation helps as well, because PSD2 requires financial institutions to offer product information in a digital manner. The question remains what role the advisors of the financial institution aspire to. Do they take on the role of product provider, limiting their advice to products offered by the financial institution? Or do they focus on the entire financial position of the client, and become the most trusted advisor? Providers who take on the responsibility to give an all-encompassing advice will, in my opinion, play the most important role. At the moment, many financial services providers are still struggling with this responsibility.

There are opportunities for parties that dare to offer a combination of broad advisory and product advice.

Will financial institutions in the Netherlands, the UK and other countries dare to offer digital advice in the future? Perhaps they will, once they realize that such an advice would actually offer a new range of opportunities. After all, an integral advice requires that one goes through the advisory process in a structured manner and use all the available information. Doing so will limit the risk that clients get a bad or incomplete advice. There are opportunities for parties that dare to offer a combination of broad advisory and product advice. This could even be a product from a different provider. It is important that an advisor has a broad view on the different products out there. Few advisors have reached this point as of now, even within their own financial institution.

Affordable, all-encompassing advice

The wealth of clients in the retail segment is usually too small, and the number of products too limited, to advise these clients in an affordable manner. Therefore banks opt for an execution only channel. But these clients do in fact need (customized) advice. They hesitate to get it because they think it is too costly. This lack of affordability may very well be a temporary situation: costs will lower as financial advice is becoming more digitized, and as it is becomes more acceptable for clients to pay a certain fee for advice. The person choosing to become a trusted advisor connects different types of data in order to give the consumer an integral (and customized) financial advice. That will be the most interesting path to take in the future.

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