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Embracing Robo-advice

October 7, 2015

Amid the newspaper articles which debate whether non-adopters of robo-advice are headed for extinction, I was intrigued to read that the financial advice sector ranks close to bottom of the list of professions in which advisers are predicted to be replaced by machines.   

 

While I subscribe to the view that firms not embracing robo-advice ultimately risk losing market share, I do not believe it will fully replace skilled, professional advisers.  I appreciate that tools offering automated solutions are sought by the DIY investor but, in the main, our clients are discerning and want to be challenged.  They actively seek the value of strategically and tactically thought-through advice which only a human can provide.

 

However, I can see that automation is already eroding certain traditional roles within our sector.  For good or bad, I do foresee that in 20 years the integration of robo-advice will have fully revolutionised our profession.

 

All this said, it is an interesting and non-disputable fact that robo-advice is forcing further segmentation of our market.  More than ever, it is incumbent on the client to discern good advice, diligence and duty of care.

 

Clearly, there is burgeoning interest in robo-advice type propositions and of course they are very relevant to the young.  It is reported that 69.4 per cent of high net worth investors under 45 would consider having at least some of their wealth managed by an automated advisory service.

 

Right now, automated advice solutions are the natural fit for the non-affluent younger workforce - those people who are used to technology, apps, and communicating via Facebook and WhatsApp. These individuals have a number of different applications open on any one device at any given time.  They are the multi-tech-taskers AKA the Millennials to whom the Baby Boomers are now passing their wealth. 

 

They may not be cash-rich and able to take on the financial burden of a mortgage.  Their circumstances may not be complicated: why should they want to sit in an office with an adviser to be given a lot of information and then told what to do?

 

This generation will demand more for nothing and is, in my opinion, the predominant market for robo-advice over the next decade.

 

The tide of automation has started within the mass-market.  As it inevitably becomes more sophisticated, it will bring with it an exponential revolution which will rapidly progress up the value chain.  Social networking and viral marketing will see to that.

 

There will be aspects of advice that an algorithm is unlikely to replace. Holistic advice involving financial planning for more complex  areas of, for example,  inheritance tax, retirement, investment planning and the taxation interplay, is unlikely to be replaced by an algorithm any time soon.

The question is which wealth management firms will be on the right side of that technology?  These are the firms which will survive extinction.

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