The biggest competition will come from advisers harnessing the power of technology
Robo is a threat for advisers – but not in the way most would expect. That was one of the key messages to come from the excellent Vanguard Investment Symposium held last month.
The conventional view of robo is that many investors will avoid advisers and go straight into funds and securities on a do-it-yourself basis, in much the same way people no longer visit physical travel agents, instead going online to the likes of Expedia. They save money, can buy their tickets any time that suits and do not have to mingle with humans at any point during the process.
For many investment activities, a lot of us prefer to do things online. The young are keener on this approach than older people, but nobody should underestimate the enthusiasm of many 60- and 70-year-olds to engage with technology to solve problems.
Interestingly, the more sophisticated we are about investing, the more we are prepared to embrace the world of fintech.
But the most attractive combination for most people is technology backed up by interaction with an adviser.
So, it is not robos themselves that pose the biggest competition for advisers. Most find there are more than enough clients to go around. Indeed, the demand for advice is strong and growing. No, Vanguard’s view is that the threat lies in those advisers using the technology to make them more competitive.
Many advisers running portfolio services are spending too much time on issues such as the mechanics of rebalancing and switching, despite the fact a lot of this can now be automated. Loads of advisers still collect fact-find information on paper before transferring it to a computer, and a surprisingly low percentage use cashflow modelling.
Compare those firms almost entirely dependent on paper-based procedures with those at the most efficient end of the market, like True Potential, which has impressive end-to-end processing and is continuously striving to improve its systems.
That said, one thing that cannot be automated (for now at least) is human interactions. Think exploring client aims and objectives, picking up emotional signals, discussing risk and what it really means, budgeting, building confidence in long-term investing and avoiding panic in a downturn. These are the soft skills and capabilities clients really value in their advisers.
And that can be too easily lost sight of. Indeed, according to Vanguard, there is a mismatch between what advisers do for their clients and what their clients really value.
While advisers spend much of their time slaving away at things machines could probably do better – and can certainly do more cheaply and accurately – clients just want more of what a human can provide.
The other area Vanguard believes will not be automated any time soon is tax planning. Taxes, people’s circumstances and planning strategies change so often that this aspect of advice will take some years to mechanise effectively.
While there is scope for more systematisation and automation in my view, the planning and, more importantly, the explaining will continue to be a very human activity.
With all of this in mind, the successful advisers of the future – the very near future – will be those who can harness the power of technology to carry out the time-consuming functions dragging down their productivity.
It remains to be seen whether advisers will be able to maintain their current level of charging and generate sufficient value by providing highly salient advice. It seems unlikely they will be able to demonstrate sufficient value unless they up their productivity and spend less time on admin. There could also be downward consumer pressure on fees generally, in which case inefficient advisers will find it very tough going indeed.
Danby Bloch is chairman of Helm Godfrey and consultant at Platforum