This year’s Fintech Week in London offered a discussion on the benefits of robo-advice and whether or not traditional wealth management services should view the robot as a collaborator or an attacker. Alongside this, the risks and implications for the industry were explored and how this sector will help form the next generation of finance if customers continue to trust these institutions.
Andrew Firth, CEO of online pension advice service Wealth Wizards highlighted that although we expect new technology to take over, we cannot predict the reality of fintech in the future. “Hybrid is going to be the most prevalent in the next 5 to 10 years, but I am suspicious of consumer research. If we had asked Amazon customers 15 years ago what kind of service they would like, they would have asked for customer service phone support. The reality is that no one has seen what the next generation of robo-advice will look like, but I do believe that a hybrid model will be the next iteration of robo advice,” Firth said.
Earlier this year, banker’s fears were confirmed as The Royal Bank of Scotland (RBS) sacked hundreds of face-to-face advisers and replaced them with a robo-advisory online service, after the Financial Conduct Authority (FCA) approved this technology. “Our customers increasingly want to bank with us using digital technology. As a result, we are scaling back our face-to-face advisers and significantly investing in an online investing platform that enables us to help a new group of customers with as little as £500 to invest,” a RBS and NatWest spokesperson said in a statement according to the BBC.
Co-founder and CIO at Wealthify, Michelle Pearce, advocated the use of a robo-advice service but explained that the use of human advisors is also essential. “We have to work with human advisors to provide a complete service. Giving financial advice is hard to automate as there are so many decisions that can be made,” Pearce said. She went on to say that it is also difficult for a new company to encourage customers to trust giving their money to an establishment they do not know.
Pearce stated that consumers trust Facebook, WhatsApp and PayPal and would willingly give their personal information to them; financial institutions, on the other hand, they are reluctant to trust. In addition to this, customers want companies to be regulated and to provide an easy to use, intuitive user experience. Firth agreed with this and said that “trust is a fundamental part of making services work.” However, he believed that established players are the ones that are going to play a big part in customers trusting robo-advisers as we have seen digital banks become retail banks in recent years.
“There is still room for startups to be trailblazers in the industry, but they will be trusted once they are adopted into the big brands,” Firth said. Giovanni Dapra, co-founder and CEO of MoneyFarm said that at the moment, only a small chunk of wealth management is being digitised, but in the future we can expect to have access to a one stop shop for all our needs.
In conversation with Phil Cunningham, CEO of Advicent, he spoke about how robo-advice is not robo-advice, it is robo-investment management and how the modern consumer needs to work with a modern advisor because digital transformation will affect their relationship. “Not only are we seeing the next generation advisor enter the marketplace, the next generation consumer is also looking for information to be readily available on their smartphone or tablet. Access to these tools is absolutely going to lead to a generation that is more aware of their financial future and their goals.”
Ryan Lewis from Advicent also underlined four reasons why clients want real people and not robots. “All in all, the benefits of human interaction are not gone. While I do not think anyone can say that robo-advisors provide no value, it is clear that consumers are still looking for the expertise of a human advisor when it comes to financial planning. In this very confusing and complicated industry, you need to continue to show your clients how valuable your personal advice really is,” Lewis said.
Despite robo-advice only just emerging in the UK, Cunningham explored how “the robo phenomenon is more mature in the US”, but this does not mean that it had taken over this market. “Some people are viewing robo-advice as their replacement. But at the end of the day, when you take all the robo-advisors across the US and look at all of the assets over management that they have, they are still so small in comparison to the large institutions. Robo-advice will absolutely be a part of the new landscape and it will not replace the current landscape.”
Cunningham said that the reason that robo-advice is so widespread across the US is because the North American market has far better opportunity for disruption. “When you look across North America, you have over 400,000 financial advisers and that’s probably a conservative estimate. Because of the sheer size and the potential to disrupt this market, this is what has led to a faster cycle of robo-advisors in the US.”
Pearce had a similar attitude and described how customers are in need of more passive solutions in this day and age. “People are different in America because they have more experience in investment. People in the UK don’t get investment and know so little, it’s scary.”