Data & Research July 7, 2017

Investors Prefer Robo Advice with a Human Touch

Financial services firms are increasingly adopting technological tools, but consumers seem to still prefer a human face behind the machines.
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Despite the advent of increasingly personalized technology entering the financial services realm, most people still prefer the human touch. That’s the conclusion drawn by a global investment survey by Legg Mason Asset Management. The study found that more than half (60%) of survey takers said that personal customer service is not only important, but it can never be replaced with technology. The sentiment transcended generations with 53% of Millennials and 65% of Baby Boomers agreeing.

Overall, 67% said “technology is a great tool, but I still want to know there’s an expert behind it guiding me.” Several respondents also reported that certain financial planning tasks like tax optimization require an expert. This was true for 64% of Millennials and 67% of Boomers. In addition, the study found that the belief that personal advice is irreplaceable is more deeply rooted in women with 65% of women sharing this belief as opposed to 55% of men.

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Still, the research found some evidence backing the steady rise of financial planning technology. Twenty-nine percent of Millennials agree with the statement, “Online tools and apps are replacing the need to speak to an advisor” compared to a net 2% of Boomers.

Legg Mason notes that “Given that Millennials are just embarking on their independent financial lives, recognizing this generational difference is vital for investment advisers or managers planning their future strategy.”

In recent years, financial services companies have responded to this demand by integrating robo-advice with personal interaction. In fact, research suggests robo advisers are not necessarily becoming a threat to the financial adviser, but rather a tool in a wide range of technology and services.

The firm found that certain financial tasks may be better achieved online as opposed to others that require personal, expert guidance. A quarter of survey participants say reviewing the performance of savings and investments is better online. Of these, however, 34% still want a human leading and technology supporting. The desire for technology decreases when it comes to complicated matters such as buying a pension or creating a comprehensive financial plan with just 14% of investors doing so online.

Legg Mason reports that “financial planning activities with the highest “pure advice” components are the most likely to be favored by survey respondents: creating a comprehensive financial plan (64%); buying a pension (61%); and looking to reduce a tax bill (58%). The firm concludes that “Interestingly, these activities may be the highest-margin parts of the investment management and advice business.”

The Markets July 7, 2017

AICPA Seeking Comments on Valuation of Financial Instruments

The institute has proposed a framework to bring clarity, consistency and transparency to the valuation of financial instruments such as mortgage-backed securities, credit default swaps, complex bonds and other derivatives.
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The American Institute of Certified Public Accountants (AICPA) is seeking comments about a new framework to guide CPAs and financial professionals on the valuation of financial instruments and their underlying components.

The framework will bring clarity, consistency and transparency to the valuation of these instruments. Historically, financial instruments, such as mortgage-backed securities, credit default swaps, complex bonds and other derivatives, have been difficult to value, which has the potential to adversely impact markets and the global economy, the AICPA says.

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The new framework defines the level of documentation necessary for a professional working with securities and financial instruments to effectively demonstrate the valuation performed. The guidance provided by the framework relies upon three major principals: independence, objectivity and consistency. This guidance will inform the basis for a new credential from the American Institute of CPAs, Certified in Valuation of Financial Instruments (CVFI), expected to launch later this year.

The Disclosure Framework for the Valuation of Financial Instruments and the Certified in Valuation of Financial Instruments (CVFI) Credential, provides guidance about how to explain the characteristics of financial instruments and disclose how these securities have been valued in a way that is understandable, consistent and transparent. The framework establishes parameters of documentation requirements, sets definitions of terms that may be unique to the framework, and includes a list of accounting, audit and valuation standards and references to technical literature directly applicable to the guidance in the framework.

NEXT: Application of the framework

The Application of the Disclosure Framework for the Valuation of Financial Instruments demonstrates how the framework would be applied for areas of valuation that are often either misapplied or insufficiently supported or documented in valuations for financial reporting. It also identifies the most common components in which the valuation professional provides a conclusion of value, and addresses matters where there is need for greater consistency in the application of the approaches and methodology. It provides support for matters that require the application of professional judgment, as well as documentation of inputs and results.

The AICPA says the framework will continue to evolve and expand to cover a broader spectrum of subject matter topics and professional practice trends in the valuation profession.

Once finalized, CVFI credential holders will be required to comply with the framework, ensuring confidence in the consistency in their work, to ensure integrity and transparency in the fulfillment of their duties, in the interest of the financial markets and ultimately to the public.

The comment period for framework is open through September 27, 2017. Comments within this time period will be reviewed and applied to the disclosure framework by the AICPA Disclosure Framework Work stream and the AICPA Financial Instruments Task Force, both of which are comprised of financial professionals, academics, and financial policy experts.

“Financial instruments have become increasingly complex, and determining their value has been a challenge that has adversely affected the market in the past. With this framework, the AICPA is responding to marketplace needs by creating a standardized and replicable process for financial professionals who perform valuations on financial instruments,” says Jeannette Koger, CPA, CGMA vice president of advisory services and credentialing, AICPA. “This framework will ensure that professionals working with financial instruments perform their engagements with independence, objectivity and consistency. We encourage all stakeholders to review and comment on the draft.”

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