What do consumers want?
This is the crux of the matter and was very well summed up, I feel, in the recent Cerulli Associates report: “Addressing Millennials, the Mass Market, and Robo-Advice”.
It stated that: “While some consumers may feel comfortable receiving all of their advice digitally, never interacting with a person, this is a small segment of the overall population. Most consumers want to know that they can reach out to a person to solve a problem with their finances should the need arise.”
How should advisers respond or adapt?
The Cerulli report mentioned above went on to say: “”In addition, we anticipate that most, if not all, retail direct firms will have a digital advice offering within the next three years, and traditional advisers will also launch digital offerings for lower-balance investor accounts”.
The trade press has highlighted the fact that tools which allow firms to automate certain parts of the advice process are being tipped to take off in the UK (and, no doubt elsewhere as well).
Much attention has been focused on the launch of algorithm-based investment portfolios, but other models are being developed which could help advisers to reduce their costs while retaining the human touch.
The online system Advicefront, for example, invites clients to input their basic information and goals as well as fill out an appetite for risk survey.
The adviser delivers recommendations, either face-to-face or remotely, while Advicefront also offers tools such as custom model portfolios, automatic portfolio rebalancing and automated annual reviews.
“Most clients don’t have complex needs, so it is possible to automate steps in the advice process like going through basic goals. The tool is not prescriptive as to what level of engagement you have with the client and that’s what makes it exciting. It is not just a piece of kit.”
These are the words of Finance & Technology Research Centre director Ian McKenna, who also highlighted the fact that this model is now leading the online advice market in the US, as I mentioned earlier.
Threat or opportunity?
Whilst online services are often perceived as a threat to the advice market, tools which can automate part of the process turn the trend into an opportunity.
This (online) advice experience is obviously very different from having an ongoing relationship with a financial planner, but that is not the target market.It is also important to realise that not all consumers need or have a requirement for advice on every financial decision.
At key stages of life, such as approaching retirement, you would expect consumers to benefit from full financial planning advice; however, for more transactional work, non-advised (or part-automated) channels will be appropriate for some.
I mentioned Paul Resnik earlier and I will now quote him: “Planning businesses have to understand their positioning and pricing in comparison to others and how they can improve their situation. The aim…..is for advisers to build closer relationships with their clients through superior personal service, more personalised portfolios and to differentiate what they do from robos”.
I couldn’t agree more. In other words, know your market and understand how best to develop and service it.
In the future, in my opinion, most clients won’t be either “online” or “face-to-face”, they will be both.
The younger generations have grown up living a great deal of their lives online, and they will want and expect to be able to access some products and services in this way. But they don’t (in most cases, thankfully) live their whole life online. Sometimes they require or desire human engagement and involvement.
Conclusions
It is not advice, nor is it new. Be wary of headlines but be aware that increased automation is going to happen.
Remember that it does not work for most financial planning needs, only for simple financial aims and requirements.
And never forget that financial services are, in many (if not most) cases, sold and not bought.
Whether online or face-to face, you need to firstly obtain the client and then engage them in the process. Just make sure that you provide advice and do not simply sell a product. A computer can do that!
