Digital advice is commanding increasing attention from regulators, consumer journalists and even politicians. Multiple speakers at the FCA’s recent three-day forum on the subject made it clear that it is not a matter of if, but when, these services become a major force in the UK personal finance industry. The sheer number of start ups I am speaking to makes me sure we will see a tsunami of new services appear early next year.
One thing I do not understand is why so many really good advisers appear intimidated by the idea of digital advice. A couple of weeks ago, I was discussing the subject with Billy Burrows and Paul Lewis on BBC Radio 4’s Money Box. There is probably far more Billy and I agree on than disagree about. For example, we both believe it is really important for people to have financial advice and that we need to find ways to reduce the cost of that advice.
To me, this is what digital advice is all about. It can make advice a utility available to everyone, rather than a luxury reserved for the wealthy. Advice should be affordable, accessible and understandable.
In the UK, we have what many financial services regulators around the world increasingly recognise as the gold standard for advice. Our framework is so respected that it is being replicated in many other countries. However, this all comes at a very real cost: such advice is only cost effective for those with significant wealth. This is where technology can help. Not everyone has complex circumstances and, when they do, a decent automated advice process can identify if they need to be guided to more specialist, inevitably human, advice.
Digital services are available 24/7. Computers do not mind if the customer wants to go over the same information again and again until they are really sure they understand it. Customers can take their time to explore their options at their leisure.
Billy was clear during the discussion that advice is a journey customers will wish to consider over time. This really lends itself to using technology that enables the customer to review their options at their own pace, reflect on the information provided and revisit the process to study more. Indeed, digital Advice should complement traditional advice processes.
Cynics will stress that machines sometimes get things wrong. But so do humans. Technology and algorithms are improving decisions all around us every day in thousands of industries. Millions of options can be considered in seconds and the results presented and ranked. In fact, such services are ideally suited to supporting a financial advice process. No financial adviser with a good value proposition has anything to fear from digital advice.
While some services will seek to target consumers direct, digital advice pioneers in the US have learnt it is far better to partner with traditional distribution than compete with it. Helping advisers with clients deliver lower cost services is more economically viable than trying to attract them directly. Very soon, having software to deliver digital advice to clients will be as natural for an adviser as using a platform.
To make the most of these emerging opportunities, advisers need to be learning about the various ways digital advice can be deployed in order to select the best solution for the clients. I will provide guidance on the options, their strengths and their weaknesses in these columns over the coming months.
Ian McKenna is director of Finance & Technology Research Centre