The relationship between technology and financial advice is a topic that often provokes polarised reactions. Advocates of robo-advice don't see the need to pay for an adviser when an algorithm can deliver tax wrappers, auto-rebalanced passive portfolios, custody, dealing and reporting, cheaply and efficiently.
On the other hand, many who dismiss robo-advice believe their face-to-face service proposition cannot be replaced by a machine. As you'd expect, reality isn't that binary.
Advisers are price setters today
It's easy to see why some may be complacent about the status quo. Demand is high thanks to pension freedoms, and there's a healthy pipeline of future client assets to come from auto-enrolment and the DB market. In fact, a 2016 APFA survey found that 69% of advisers have turned away clients in the last 12 months. Clearly, today, customers are prepared to pay for face-to-face advice.
But what about tomorrow?
There are powerful socio-economic and technological forces shaping change, and government policy demands increased capacity for more accessible (i.e. cheaper) advice. Such forces will put pressure on existing advice models and will inevitably open the door for robo-propositions.
In addition, clients are becoming more demanding. They want a more active and engaging service from their adviser, but this does not necessarily mean they will be willing to pay more for it. For advice models to thrive they will need to incorporate elements of robo-technology whilst demonstrating additional value.
For advice models to thrive they will need to incorporate elements of robo-technology whilst demonstration additional value.
Ironically, the technology that's often touted as a "threat" to advice could be the thing that ensures it remains sustainable into the future.
In the US, the overwhelming focus is on cost. Robo-propositions are setting a new fee precedent for commoditised solutions that offer simple risk assessment and asset allocation models. Clients are expected to execute transactions and often the human advice element is light touch, positioned as investment coaching and typically requires an additional fee.
Yet tellingly, there is evidence of some clients leaving broker dealers in favour of these low cost robo-options. This should be a salient lesson to any adviser competing on price. The price play is like the playground bully; all good until a bigger boy comes along.
How have US advisers responded?
The most successful US advice propositions are using robo-technology to help them attract and service more clients. For example:
- Portfolio construction technology to build, monitor and control risks.
- Digital retirement technology to help them dynamically manage retirement income and client reviews.
- Integrated back office and accounting systems.
- An integrated CRM ecosystem and marketing automation platform.
They also offer clients the option of a telephone, video or WebEx based service; often paired with online scheduling and diary management. Ultimately, the client is in control.
Technology can also facilitate frictionless journeys between the different systems and platforms that clients use.
What will the UK advice market look like in a decade?
I believe technology will take us into an age of integration. Platforms will become an ecosystem rather than a single "product."
Platforms will become an ecosystem rather than a single product.
The aspiration has to be a smoother experience for both client and adviser. Technology should connect the independent parts of the value chain. Advisers will have a core record keeping, custody and dealing system that integrates with every other component, like portfolio management, CRM and marketing automation.
The real benefit is the experience will be configured to suit different client needs. Segmented service models will be defined by the adviser and their client and not by the product.
The continuum from robo-propositions to full service advice
We’re seeing the evolution of digital enablement, from simple online training and guidance through to full service wealth management with digital advice.
Three core models are emerging - the pure robo-adviser, the remote adviser model and the digitally enhanced adviser.
Three core models are emerging:
- The pure robo-adviser. This can be viewed as ‘next generation’ direct sales with similar commercial forces applying. Brand awareness and acquisition costs are likely to determine success, with those with access to potential clients the most likely winners. Unlikely to be profitable in its own right, the most important consideration for advisers is to understand how it complements/enhances profitable advice propositions.
- The remote adviser model. This is a natural extension of face-to-face advice, allowing firms to offer value added solutions and timely interventions at key stages in a client's life, at a low cost to serve. There's a real adviser involved, but technology picks up the strain. For example, the client enters the data; there will be online reporting and WebEx; and access to the adviser will be by Skype.
- Finally, there's the digitally enhanced adviser. This is full service, face-to-face advice, offering complex solutions and ongoing management. This is the most individual, relationship-based type of advice but technology still plays a key role. The model that enables this depends on sophisticated automated processes that can be configured to reflect individual client requirements whilst minimising unnecessary manual intervention.
All three models require investment in integrated technology or sourcing a white label option from a platform partner.
So, is technology a threat or a saviour when it comes to financial advice? I believe in the short-term, advisers may be able to continue without embracing technology, and they’ll probably be successful for a while. However, to be sustainable long term, all the evidence suggests technology will be a critical factor in meeting client demand into the future.