Love it or hate it you cannot ignore the latest American import – robo advice. What many of us initially thought was a passing fad is now officially here to stay, as the FCA has advocated the adoption of ‘automated advice models’ as a means of delivering regulated advice ‘’more cheaply, efficiently and effectively’’.
The industry has responded fairly quickly with the steady rise in automated services and new market entrants like Money Farm from Italy, which are specifically designed to support clients with ‘smaller pots’ and new young investors. Recent research (as quoted on the BBC) shows that assets managed by Robo Advice could hit £5 trillion in the next 10 years in the UK. It’s not a surprising trend, considering the potential benefits of artificial intelligence providing mass advice from a provider and regulator’s point of view.
But there is a growing notion that robo-advisers are set to replace or overtake the more ‘traditional’ adviser who still value face-to-face interaction and client relationships. The financial press has been quick to publish research over the lack of structured succession planning by advisers (the average age of an adviser in the UK is 56), leading to the potential that the rise of roboadvice could potentially fill that forecasted void in the near future.
A few weeks ago, a BBC headline on the matter read “Robo Advice approved by FCA but axes 200 (sic. Advice) jobs at RBS’’ (ironically with a cover picture of three humans interacting). The article raises some key points – especially in asking “can a machine be trusted to dole out financial advice?’’ Laura Whitecombe (knowledge and products editor, ThisisMoney.co.uk) responds to the question by raising concerns over the ‘one size fits all’ logic Robo advice assumes. It is a rather dangerous logic assumption that tends to ignore the complexities in investor needs, which requires intricate financial planning and personalisation.
This concern is echoed by Rob Gleeson, Head of Research at FE, who believes that it is unfair to ‘bucket’ clients into allocations based on a few analytical questions, and acknowledges the fact that consumers need personalised advice to enjoy investment success. This is of particular relevance in the post pension-freedom age as, while automated models can be useful for saving in accumulation, they are unlikely to be able to help with decision-making at retirement.
It’s also safe to say that the general public’s initial perception of robo advice hasn’t been particularly promising. Boring Money’s Spring Census report, which used YouGov statistics from 2,042 adults, found that 28 per cent of adults prefer the concept of face-to-face advice over robo advice; however, 92 per cent of the general public are not prepared to pay more than £100 an hour for financial advice (UK average stands at £150). The study highlights a ‘reality gap’ between client expectation and willingness to pay.
However, looking at other service-based industries, it is safe to say that there will always be demand for personalised, hands-on service at a fee and advisers can turn to supplementary technology to support their business processes and increase efficiencies. The proliferation of financial planning solutions – including investment research tools, risk -profiling widgets and back office systems – are today integrating to form ecosystems with a view to helping advisers further streamline their investment process and profitably manage client assets.
As a provider of investment technology to over 3,000 financial advice firms across the country, FE believes that the role of technology in the financial markets is to assist, not replace, hard-working financial planning professionals. We design our solutions to help advisers reduce admin, connect better with clients and save time, so that they can focus on doing what they do best - provide advice.
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