Rise of the Robots?
The Initial Impact of Robo Advice.
18 Jul 2019
SPOILER ALERT! Fans of bestselling author Dan Brown (he of ‘The Da Vinci Code’ fame) should look away now…
In Brown’s blockbuster, ‘Origin’, Professor Robert Langdon is drawn into a complex intrigue. The adventure centres around the rise of artificial intelligence, with the story arc exploring how technology becomes the next phase of human evolution, ultimately eliminating the human race as we know it.
Scary stuff or a brave new world?
In the embryonic stages of robo advice, the attempt at a financial land grab was driven by the seduction of technology over ‘user experience’. A lack of focus on the deeper lying issue of getting people to change their habits and becoming comfortable making financial decisions via an automated route is certainly one explantion why growth in the sector has been relatively slow.
The FCA were the first regulator to provide a ‘regulatory sandbox’, creating a controlled environment where firms could ‘play’ and safely try out new ideas before they went to market.
The focus on robo advice models by the regulator has been influenced greatly by the Financial Advice Market Review (FAMR) who see the introduction of robo advice as one potential way of making financial advice more accessible to the masses. The FAMR recognise that the cost of financial advice may exclude a large proportion of the population from obtaining it, particularly those with smaller amounts to invest where the cost of obtaining financial advice would be disproportionate to the amount invested.
However, herein lies the rub. A sizeable proportion of those who find themselves in the advice gap are also less likely to be comfortable utilising technology for investing, and some are likely to be nervous in engaging with a financial adviser.
Who do you trust more, a human or a computer?
One very important aspect to bear in mind is the role that emotional intelligence plays. When it comes to financial advice, people want to receive good service, the right advice for them and to feel ‘valued’. For some clients, the monies they are looking to invest may hold a certain significance and so they look for some form of empathy and altruistic view applied towards the actual meaning of the money.
At present, only human interaction can provide this, and great financial advice is about building strong relationships and treating clients as real people. Trust comes from having a true appreciation and recognition that clients all ride the stresses and joys of life the same as anyone. No robo solution is going to provide this level of empathy anytime soon, nor will a robo advice solution be a suitable replacement for sophisticated, technical and in-depth financial planning.
Regardless of who or what you trust, one overarching aspect of this whole subject is the need for, and application of, regulation.
“…our rules are technology neutral and the mode of distribution does not change the requirement that firms only recommend financial products which are suitable. Different modes of distribution have different risks and it is important that firms manage these risks appropriately. A robo model can help mitigate some of the risks associated with human advisers and managing a large salesforce. But the design of the model is crucial – a poorly designed model could lead to systemic mis-selling. Managing this risk, and others, is ultimately the responsibility of the firm and its senior management. This responsibility isn’t reduced if the firm uses third party suppliers to help with the technology part – it rests with the firm offering the system. And if, for example, your method of profiling the risk appetite of the client is flawed, it is no more defensible because you sourced the model externally.” - Bob Ferguson, Head of Department, Strategy & Competition Division, FCA
The hybrid adviser model
Robo advice seems to have some traction with a younger demograph looking to make simple investment decisions but this sector of the industry, in general, seems to be struggling. We have seen Investec announce the closure of their ‘Click and Invest’ robo advice service, citing a low appetite for the service and a market "growing at a much slower rate than expected" and there appears to be a common trend of robo propositions struggling to turn a profit as they plough monies into development and marketing in order to attract clients.
However, there does seem to be a leaning towards favouring a hybrid adviser model where the advice journey is a combination of human and robo interaction. The FCA have seen this model evolve faster than most others as part of its Advice Unit work.
If you stop to think about this for a minute, it actually makes perfect sense to retain human interaction as part of the process. For clients with large investment portfolios or who are making the major transition into retirement, face to face advice is the proverbial ‘no brainer’, but it is also just as relevant for those clients who are sat in the advice gap, perhaps with their modest inheritance, but who want to feel ‘recognised’ and ‘valued’.
So, is there a utopia to be achieved that provides all this emotional input and then introduces a robo element that complements the process by introducing efficiency and speed of execution? Could the future be where man and machine exist in perfect harmony, providing a journey where the client isn’t a slave to the technology but instead sits at the heart of the process as the most important element, supported by a slick and valued service which recognises the client as a human being and not just a number? I guess only time will tell, but that, most certainly, would be a Brave New World indeed…
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