While new pension freedoms have seen a surge in activity for many IFAs as clients assess their financial options in retirement, an additional impact has been the increase in automated advice services. So how concerned should IFAs be about this development?
Certainly going forward the opportunity lies in offering a variety of advice models to suit different client segments. And IFAs that embrace technology will be in a better position to offer cost effective advice solutions to those who seek it. But in the short term we are unlikely to see much movement between clients that would normally use an IFA going down the automated advice service and vice versa. However, in the medium to long term there is the possibility of a more fluid relationship between the two.
Why? Because one thing that freedom to access pension pots will do is to raise people's awareness of their savings. As a result, some consumers will overspend or totally spend what had previously been earmarked for retirement. Others will take a more conservative approach and invest wisely and, in many, cases better. In both cases, the awareness factor will potentially give consumers more confidence when it comes to investing and the ability to do this easily and cheaply online will no doubt be a consideration for all, whether or not they currently use an IFA.
While at this stage we can only speculate, the reaction of IFAs will be key to what effects this will have on the advice sector in the long term. What IFAs shouldn't do is panic and cut fees to try and keep clients happy. This would be the route to an unprofitable and ultimately failing business. Another route IFAs should not take is sit back and do nothing. We can't stop the progress of technology. It's here, it's getting better and for some consumers it will provide both an adequate or additional way to help them save for retirement.
The best response for IFAs in my view is to embrace technology. Tame it so that it works for your business in allowing you to adapt your model to suit different client segments, streamline processes, speed up transactions and engage with clients much better. Most importantly, use it to differentiate your proposition from an automated one. After all, using technology to free up your time to come up with customised financial plans that highlight your skills as an adviser is probably the best way to turn the tables on any threat technology poses.