View more on these topics

Alistair Cunningham: We are a long way from the rise of the machines

Alistair-Cunningham-MM-Peach-700.jpg

Growing up in the county town of Kent, I only had the most rudimentary grasp of the Queens’ English. This leaves me significantly disadvantaged when I have to battle voice-activated systems like National Rail Enquiries or Vue Cinemas’ booking line. I am also the one holding up the queue in Tesco with the “unexpected item in the bagging area”. I am consistently let down by technology.

Automation started by removing the human element (and cost) from simple, systematic tasks. As technology has evolved, planes have been taught to fly themselves, robots build cars and the insurance comparison site has been born.

So advice is next, right? Actually, no, the speculation over the rise of robo-advice is massively premature. Robo-advice can be described, at best, as tools that generate a limited range of outcomes after completion of online risk questionnaires. They are investment sales tools and nothing more. They are also, in the UK particularly, expensive.

Looking first to the US, which is often highlighted as leading the way in this market, the services gravitate towards the vanilla risk-profiling, fund optimising, auto-rebalancing investment platforms.

In some cases some systematic tax planning is offered, helping individuals to identify capital losses or gains, as well as assisting with sale decisions, often by diversifying away from heavy over-exposure to individual stocks.

Charges usually come in at under 0.5 per cent per annum: not disproportionately costly for smaller pots.

The UK market is more juvenile and, as I say, costly. Charges are around 1 per cent per annum, with some discounts on larger portfolios. It is widely reported these firms are loss-making and functionality is universally less than comparable US sites.

These technology-driven solutions may be appealing to younger, high-earning individuals wanting to save without clear long-term goals but they are not a replacement for proper, holistic financial planning.

As financial planners we help individuals with more than risk profiling although this is part of our role. We question deeply, we identify goals and objectives, and we help prioritise these. We help clients understand their behavioural traits, their rational and irrational reactions to external events, often outside of their control. Most importantly, we condense all this information in an intelligible format and provide as little or as much additional information as they require. Robots cannot (currently) make these judgements or assist with these uniquely human discussions.

But that is not to say technology has nothing to add. Computers are unarguably unbiased, driven by strict process, and can help mitigate errors, particularly when caused by human biases. Robo advice may help drive down some costs, for example, the collation of “hard” facts, commencing the risk profiling process. A human operator steps in when required.

By embracing appropriate technology, these robo-advice platforms will benefit us and our clients over the longer term. There is a lot of nonsense being talked about robots but has it not always been thus? I send more emails than I do letters but my secretary is not scratching around for things to do. Maybe when Dragon Dictate can understand my Estuary English she might worry but, for now, we are long way from the rise of the machines.

Alistair Cunningham is financial planning director at Wingate Financial Planning

Recommended

10

Nutmeg makes £5.3m loss

Nutmeg has reported a £5.3m pre-tax loss for 2014, compared to a £3.6m loss the previous year. The online discretionary investment manager reported a turnover of £635,381 for the year, up from £103,903 in 2013. The results say the company may require further cash injections to continue to develop and market its product offering, and […]

FCA logo glass 3 620x430
7

FCA commits to annual board reviews after closed-book fiasco

The FCA has agreed to a programme of annual reviews on the effectiveness of its board following a damning report from MPs. The Treasury select committee slammed the regulator as “dysfunctional” in a March report that criticised its handling of a review into closed-book policies last year. In a response to the report published this […]

Lesley Titcombe

TPR clashes with FCA over retirement risk warnings limit

The Pensions Regulator has set itself on a collision course with the FCA after chief executive Lesley Titcomb suggested setting a £10,000 minimum for retirement risk warnings would be “problematic”. Earlier this month, the FCA announced a relaxation of the new ‘second line of defence’ rules. As a result, contract-based pension providers will only need […]

2

Advisers back Govt plans to scale back pension guidance

Advisers have backed Government plans to “rationalise” pensions guidance after the Treasury raised concerns about overlapping services. In a financial guidance paper published alongside the Financial Advice Market Review consultation, the Treasury suggested cuts could be made to the services offered by the Money Advice Service and Pension Wise to reduce duplication. Currently, pension guidance is […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Christopher Pitt 27th October 2015 at 1:45 pm

    Hmm… I wonder whatever happened to all those music shops in the high street? And all those travel agents. And, those camera stores. And those Video / DVD rental outlets. And those general insurance brokers? And, we could go on.

    It might not be robots but technology is changing the world of financial advice whether we like it or not.

  2. Christopher you miss the point that none of your examples gave geniune advice to their clients, or at least not advice that was sufficiently valued by their clients.

    General Insurance Brokers are the exception, but those brokers that have disappeared were in the highly commoditised domestic market where cost is arguably the key determinent. I work with some excellent General Insurance Brokers in the commercial market where product and client knowledge is key to delivery great advice that clients do value.

    I don’t think any advisers dispute that technology is key to driving down cost and helping clients, but it is a big jump to go from that to robo-advice.

Leave a comment