The next generation of lending is here as shown by robo-advice booming in the UK, especially with news of RBS replacing human advisors with robo-advisors. However, as Advicent’s CEO Phil Cunningham explained, financial planning should still be at the core of wealth management in every financial institution, however big or small. bobsguide spoke to Phil Cunningham about how the modern consumer needs to work with a modern advisor and how digital transformation affects their relationship, as well as the differences between the attitude towards robo-advice in the US.
Pre-2000, the relationship between a client and their advisor came down to a few meetings a week, but still became a very time-consuming and tiresome activity. Cunningham highlighted how this relationship needs to be more regular as we are moving forward into the digital age. “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.”
However, the question that everyone wants the answer to is whether the consumer will prefer robo-advice to traditional techniques. “The robo strategy is not a more personal strategy, as I believe that an advisor should always be involved in the relationship. Having said that, some banks have clients that have very minimum needs, low account balances, and a lower investable income; and the banks may not be able to serve these clients with a human advisor. Here is where we see the need for automated advice,” Cunningham said.
Because of the growth of digital technologies, people want their information quickly and when they want it - but they might still want access to a human financial advisor for larger purchases and investment decisions. Ryan Lewis from Advicent underlined four reasons why clients want real people and not robots in a recent blog post.
“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.
Cunningham has a similar attitude about this subject and explained that there will never be a full scale shift away from the human advisor, but it may help a certain demographic of investor. “A financial plan is core to a relationship between a client and an advisor, and an advisor will always be part of that planning process. A robo-advisor is really not robo-advice, it’s really just robo investment management.”
News of the UK Financial Conduct Authority advocating robo-advice resulted in RBS replacing over 200 face-to-face advisors with an online service. According to the BBC, an RBS and NatWest spokesperson said in a statement that customers would prefer this way of banking as they are increasingly using digital technology. “As a result, we are scaling back out 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.”
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.”