In this post:
- The Danger of the Frictionless Advice Journey
- What are Good and Bad Friction
- Good and Bad Friction in an Advice Context
Are You Thinking About ‘Good Friction’ in Your Advice Journey?
The Danger of the Frictionless Advice Journey
Financial services institutions (FSIs) — especially those providing digital or hybrid advice journeys and apps — often focus on removing “friction” in the customer journey. Lower friction is generally considered better. It means lower effort and higher convenience for the customer, which translates into higher conversion for the FSI, among other benefits.
But there’s a danger here, as Renee Richardson Gosline recently outlined in her Harvard Business Review article, Why AI Customer Journeys Need More Friction. She draws a critical distinction between good and bad friction, in the context of firms introducing AI to their customer journeys. She argues that firms need to be more careful about removing all friction, which can introduce bias, strip customers of their sense of agency, and erode their trust. She urges firms instead to be thoughtful about inserting good friction, which gives customers agency, improves their choices, and builds trust.
Her points are highly relevant for FSIs that are fully or partially digitizing the investment and advice journey for clients, even when AI isn’t in the picture.
What are Good and Bad Friction?
Here’s what Gosline writes about good and bad friction:
“Good friction is a touch point along the journey to a goal that gives humans the agency and autonomy to improve choice [emphasis mine], rather than automating the humans out of decision-making. This approach is decidedly human-first.
And friction can be good when we need to take time with customers to better understand their needs and unique experiences…
Bad friction, on the other hand, disempowers the customer and introduces potential harm, especially to vulnerable populations.”
Good and Bad Friction in an Advice Context
In an advice context, much can be de-frictioned (account setup; gathering info about held away assets; etc.)—and all for the better. But one domain that deserves careful thinking about good and bad friction is understanding client preferences.
Client preferences go beyond the domain of risk to include sustainable investing preferences, time preferences (which govern spending/saving behavior), annuitization preferences, and so on. To learn more about preferences, see Foundations: Life’s Three Key Tradeoffs.
For purpose of applying the good/bad friction lens, take risk preferences as an example. As FSIs digitize client journeys, they often start by either stripping down an existing risk tolerance questionnaire (RTQ) or they look for the lowest friction risk profiling alternatives (i.e., with the fewest number of questions).* In some cases, they go to the extreme of asking the client just a handful of self-assessment questions. To wit, see the “Risk-Tolerance Questionnaires” section on page 27 of Morningstar’s 2022 Robo-Advisor Landscape report.
This has “bad friction” written all over it—it disempowers customers and introduces risk of harm, especially to vulnerable populations, because it becomes a very thin and noisy measurement of client risk attitudes.
Instead, firms should re-think risk profiling with good friction in mind. What is the lowest friction, but highest power risk profiling experience we could provide to customers in the digital journey? One that gives clients the agency and autonomy to improve choice, as Gosline writes. One that enfranchises clients. One that lets FSIs “show the work” to the client—we’ve deeply understood your preferences, and here’s why the recommended portfolio or product is best suited to your preferences.
In all our research, revealed preference tools are the best “good friction” client profiling experience one could hope to provide. Customers use their mobile device to make decisions in artfully crafted preference scenarios that are intuitive and quick. Not only do they give a sense of agency to clients, but they detect vulnerable clients who don’t have coherent preferences to begin with, and therefore should be handled with greater care.
Another critical “good friction opportunity” in the advice journey happens when clients enter year 2, and year 3, and each year thereafter. Client preferences don’t stand still—they change and evolve. Sometimes that’s obvious to a provider (e.g., client starts a family), but sometimes it’s more subtle and difficult to pick up, or even hard for a client to self-report (e.g., in their early 50s, client gradually spends more time thinking ahead to retirement).
Inserting an annual digital preference check that calls on the client to actively participate in a short, revealed preference activity is good friction. It’s low effort for the client, but gives them a sense of agency and confidence at a systematic measurement of their preferences. Routine preference “temperature checks” like this are a key way to maintain trust and deepen the client relationship, especially if you can detect subtle but important shifts in preferences about which clients are not self-aware.
As more FSIs focus on digital and hybrid advice offerings, we believe the winners will be those that remain human-first in their design. They will thoughtfully insert points of good friction to guard against bad friction creeping in. And that will make all the difference to their clients, who are becoming no less human in an increasingly digital world.
*I’m setting aside here the fundamental limitations of relying on stated preference methods (i.e., RTQs) for profiling clients—a matter for a different blog post. See: Stated vs. Revealed Preferences.