If the birth of the internet over two decades ago launched a wave of revolution for financial services and the advice profession, the next 10 years could be a tsunami.
That was the message from Ben Goss (pictured), chief executive of Distribution Technology, at a recent debate in London titled 'Financial Advice in a Digital World'.
The most contemporary technological developments and imminent disruptions go beyond the now familiar concept of robo-advice, which commentators largely agree will deliver value for consumers with fewer assets while disputing its classification as advice.
The jury is out on the extent automation and cheap (or free) online services accessible to the mass market will affect advisers’ charging models, and how rapidly this tsunami might hit the profession’s shores. Goss said financial planning would always be emotional, and people would always pay for that. Clients need their complex emotional reasons for planning their financial future understood.
‘It requires huge amounts of data. If you think about automating a driverless car, it not only needs to know how to drive a car, but it needs to know about its surroundings and environment,’ said Goss. ‘Financial planning is no different in that you need to know a lot about the customer: what they’ve got and what their circumstances are, but also understand about the general environment, the markets and their personal environment.’
Goss’s conclusion was getting it all together in a way that feels frictionless for a customer would take many years, even if the technology to automate the whole process is already developed. To further the analogy, you might be happy to sit in a fully automated car as it takes you around a track, where spinning off might result in a collision with a few tyres and some bumps and bruises, but how about along an exposed mountain pass in dense fog? When the stakes are higher, the value of being able to access some human control and adaptability rises sharply.
Even if technological advances could fully automate the technical aspects of advice, consumers would not want to risk a damaging loss on pure AI.
Hugely disruptive online services within other sectors, such as Rightmove and Zoopla, which have hammered the old guard of high street estate agents, could soon have their equivalents in financial planning.
In a recent article for New Model Adviser®, Clive Waller, managing director of CWC Research, highlighted fact-finding, cashflow analysis and risk measurement will soon be in the hands of the client. This may take the form of something similar to Rightmove, which enables consumers to bypass the adviser to access these processes. Perhaps technology will allow clients to compare propositions and advisers in seconds via a simple algorithm.
The key factor in financial planning is the customer has to make conscious risk-based decisions, particularly in the retirement space. It is not a case of exchanging cash for a product but, at least when it comes to investment, of sacrificing something seemingly secure, stable and long term, for a potentially greater return. Consumers must decide what effect that may have on the rest of their lives if the downside risk, that cliff edge in the fog, becomes a reality.
That is where the need for human advice comes in. Estate agency is inextricably connected to the sale of a product. There are far fewer variables for a consumer to match up the characteristics of a house (number of rooms, size, location) with their personal circumstances.
In the complex world of investments, pensions and so on, the possible criteria are almost limitless, and people will always have a need for specialist, impartial advice on how to achieve goals specific to them. This would be extremely difficult for a cheap mass market solution to encompass.