Is the growing adoption of robo-advice the first step to seeing financial advisers become extinct and artificial intelligence taking over, dominating the world of financial services?
Kevin Paterson (Source Insurance) says recent research indicates that over a third (35%) of advisers feel that the biggest future threat to their business comes from robo-advice and technology while 85% of UK millennials have said that they’re comfortable with it. (For a useful description of generational labelling, click here) You could be forgiven for thinking that it’s Judgement Day for financial advisers and that the machines are on the brink of victory.
However, rather than fear the arrival of the Terminator, why not learn how to use it to your advantage? Think of it not as an opponent, but as a digital assistant that can remove much of the mundane work and allow advisers to focus on what they do best.
3 reasons to embrace the new technology of robo-advice
1. Lower Fees: Prior to the introduction of the robo-adviser platforms, investors were lucky to receive professionally managed investment assistance for less than 1.0% of the portfolio being managed. The robos have significantly changed that paradigm.
2. Access to Robo-Adviser Services through a Financial Adviser: It’s becoming more common for traditional financial planning practices to ‘white label’ (i.e. re-brand them to look like their own product) robo-advisers’ platforms for their clients. This takes the cumbersome task of choosing assets out of their hands so that the financial adviser can spend more time with their clients addressing individual tax, estate, and financial planning issues.
3. Expanding the Market for Financial Advice: Some consumers, younger investors or those with lower net worth, may not have considered professional financial advice. The robo-advisers are growing the existing market of financial advisory clients. Because of the easy access and lower fee models for professional financial management, more consumers may choose robo-advisers’ professional management in lieu of the DIY model.
As Kevin Paterson goes on to say, the fact is that there is a significant percentage of the UK population who resist the idea of sitting down with someone to arrange a mortgage or sort out insurance: the millennials, or Gen Y as they’re sometimes called, they’re digital natives. They have grown up with technology and they expect to be able to do everything from their smartphone. If advisers want to tap into this audience, then they’ll need to adapt how they interact with them and accept that robo-advice has a part to play.
However, they’re not the majority. A lot of clients, particularly those that don’t fit a lender’s standard criteria, will benefit from a face to face service but that doesn’t mean that advisers can’t embrace the advantages that technology can deliver. You can consider deploying basic robo-advice as a form of digital triage to get information from clients before a meeting. Cutting out the mundane and isolating the essential issues up front will allow a far better understanding of their circumstances and needs, making a face to face session far more productive.
And a final comment from David Stevens, head of automated advice strategy at LV:
“It has been painted as a good versus evil debate in some corners. At the end of the day, if you help people get better outcomes, they will do better and the wider economy will benefit as a result.”
He predicts also that a great number of pensioners with small pensions will turn to robo-advisers to help them maximise the recent pension reforms as human advisers decline their business.
Mr Stevens added: “There are a lot of people who would want advice delivered solely through a human and are happy to pay for that. Robo-advice can be a good and cheaper alternative, and can even complement the traditional process. Advisers could implement the technology to service low net-value customers.”[/fusion_text]