Robo-advice or human adviser (or a bit of both)?

Those with an IT background or anyone who has used a virtual chat during an online shopping session will be quick to tell you that robo-advice just means there is a complex algorithm looking out for key words and answering your questions based on a number of factors throughout the conversation, rather than C-3PO sitting at a desk in central London.

Sounds smart right? It is!

There are a lot of good use cases for algorithmic responses to customer queries, but in financial advice how good can the algorithm really be? Could it remember that during the last meeting you mentioned you were expecting your first child, or that you mentioned once that you were getting frustrated at work trying to understand what various changes could mean for your financial objectives?

Let us take a closer look at retirement. One of the first questions I ask my prospective clients is when they would like to retire. This is one of the key elements to achieving financial freedom and will have an impact not just on pension planning, but all other forms of client strategy too. I have had many meetings when the immediate response is a definitive age 65 or 67, as if their mind has been made up. Tell that to a robot and you are onto the next question.

However, my response is always ‘why?’ Is it that they want to retire at that age because they believe that that is the earliest they can? Is it linked to the state pension? Do they want to work as long as possible? All of these factors can, in my view, only be linked to a proper conversation about what retirement looks like. More often than not, I find that the answer given is due to a misconception of the current rules and options available, rather than the actual goal. For the retirement question, it is usually an overstated number, and I doubt a robot would be as happy as I am when I tell the client they can achieve their retirement objectives a lot sooner than they expected.

So, what is digital wealth management?

If the above proves that wealth management for most still needs to be led by a human being, where does that leave digital wealth management? For me, it is more important than ever. Not as a tool to replace advisers, but as a tool to assist advisers in delivering the best possible advice to clients.

After having the retirement conversations noted above, a client and adviser can digitally/virtually/robotically input a number of different scenarios to help plan the way forward, extrapolating investment returns, savings capacity and even unexpected global events such as the financial crisis, dot.com bubble or more recently the COVID-19 pandemic into the financial planning models.  

I believe this type of planning can be enhanced with the help of digital solutions. I have a lot of respect for the advisers of old who scribbled these calculations on the back of their notepads and faxed a copy back to their clients. However, the time taken and the margin for error with this method is much longer and larger than a mobile application that can be shared instantly, in a manner the client wishes to access it in, such as graphs, tables or even a video summary. This is without the need to try to decipher the adviser’s handwriting or wait until the adviser gets back to the office to send the fax in the first place.

Higher cost or more value?

We have been told that robo-advice is cheap and human advice is expensive, so what happens when humans and robots meet to deliver outcomes for clients? I believe a lot of this depends on the firm that is delivering it. A firm that has sufficient funds committed for research and development may utilise their reserves to invest in technology, to bring forward the tools required by advisers, thereby increasing productivity and ultimately driving down client costs.

For those where sufficient reserves are unavailable, it may be that costs are driven upwards to ensure sufficient resources are allocated to digital wealth management in order to remain competitive, as clients undoubtedly expect to receive a blend of human and digital interaction.

Most importantly for clients will be the trade-off between cost and value and at all stages of a client journey, over 10 years of delivering financial advice, clients have always been willing to pay for good quality advice, delivered in a manner that is easy to understand and most importantly, makes a real impact on their financial goals.

What next?

The industry doesn’t expect robots to be the new financial adviser of the 2020s and beyond, but we are already seeing a fundamental shift in the type of adviser in the UK. While the average age of a financial adviser is still relatively high at 58, compared to complementary industries such as accountants where the average age is 42, younger advisers are reaching the forefront of the industry, bringing in younger clients with them. And these younger clients are used to receiving their services quickly, efficiently and most importantly, digitally.

Amal Mashru, consultant at Mattioli Woods plc