In a poll at the New Model Adviser® conference earlier this year, 37% of advisers said robo-advice would be their biggest threat in the next 10 years. But firms can use automated technologies to help compete.
Although robo-advice is arguably still too niche a proposition at the moment, it will evolve into a more mainstream activity over the next decade. In doing so, it will become a more mainstream source of risk in the advice market.
But it is unlikely the widespread adoption of robo-advice will occur with a big bang. It is much more likely to be a series of smaller steps, just like in the motor industry. Although this industry is working towards the creation of driverless cars, there have also been a number of smaller developments along the way to aid drivers, including automatic braking and lane assistance.
So until robo-advice becomes more widespread and fully developed, it is more likely technology will function as an enabler. It will address key issues including access, engagement and communications.
The robo-solutions of the next decade are likely to look very different from the ones in use today. They will probably be broader propositions, focusing on more than investments or pensions. They will take a holistic approach that recognises customers’ needs for a seamless service that enables them to interact on their terms.
Is robo-advice a threat?
Pure robo-advice is unlikely to be the main threat to advisers. Instead, solutions that enable customers to interact with firms in the way they choose are likely to come to the fore. These will be dependent on people’s needs at the time and the products involved, whether that is robo, non-advised or traditional advice models, or a combination of all three.
Some customers may be comfortable with a purely robo service, while others may want the option of asking questions, accessing guidance or ‘opting up’ to full advice in this service. To maximise customer outcomes and commercial success, these transactions need to be seamless. The greater use of technology in customers’ lives increases expectations of the service levels of such offerings.
Robo-solutions are also less likely to present a threat to advisers’ existing client bank. The greater effect will probably be felt by the next generation of clients, who may not have the existing relationship and loyalty to the more traditional advice proposition.
However, robo-advice also presents an opportunity for firms to target and engage the next generation of customers. This can be done through gamification of the solution, a lower price point and offering a broader financial education platform.
How can robo-advice be harnessed?
The most successful firms in this new advice landscape will be those that use technology to better serve the needs of customers, rather than to simply keep up with the market. The positive use of behavioural economics, to support effective decision-making, will also be an integral part of successful robo-solutions.
Some firms are already using robo-solutions to serve the needs of scheme members more effectively, by delivering low-cost guidance on auto-enrolment pensions. This is typically around levels of funding and investment options, but falls short of full advice.
But it does address a significant knowledge gap in the target market. This is a particularly beneficial use of robo-advice. Following the roll-out of auto-enrolment, there will be around 10 million new pension savers: many of whom will not have access to full financial advice.
Although none of us have a crystal ball, it is clear the advice market is changing. Firms would do well to take action to ensure they can deliver the right solutions and outcomes in the future.
Phil Deeks is technical director at TCC