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