Few distribution businesses are impervious to the ever-growing influence of the internet. Car dealerships, supermarkets, and all manner of other distributors have seen margins squeezed by the growth of the online distribution channel.
But will traditional financial advice be subject to the same squeeze from web-based simplified financial advice?
Here we set out five reasons why online simplified advice may be a struggle.
Something for nothing
Digital-age consumers love nothing more than getting something for free, and web-based businesses have often struggled to get paid for their product.
There is little to prevent consumers taking tailored portfolios from a simplified advice process and transacting direct.
Simplified advice services (and some non-advised propositions) typically build a portfolio recommendation based on an individual’s circumstances but charges are based on the portfolio being bought from within the site.
Consumers will not be getting the ”full-fat” service with ongoing rebalancing, but cost-conscious savers will look to harvest the intellectual value of simplified advice propositions and imitate them on the cheap.
Simplified advice will not look drastically different from existing non-advised services from direct-to-consumer platforms.
Those platforms typically provide similar risk-profiling tools, adjustable sliders and target scoring which looks a lot like that used in simplified advice software.
If simplified advice firms are to charge more to cover the regulatory burden of offering a personal recommendation, they will need to justify to the man on the street why they are better than existing online non-advised services.
Understanding the web
When email was first devised it was simply an electronic version of its old-world equivalent: post.
That is why emails come with the ‘to’ and ‘from’ address fields, a signature format and so on.
The result is a cluttered system that Google and others have tried in vain to overthrow, as the format is too embedded in the workplace to be successfully superceded.
Some of the most successful online businesses have understood that reproducing a real-world service in electronic format will not necessarily result in a successful product.
Online advice processes still bear a lot of the hallmarks of face-to-face advice, including regulatory declarations, fact-finds and recommendation journeys. More could be done to make the process appeal to a web-user.
This has been the primary bug-bear for many. While the regulator has set out the terms under which simplified advice can operate, some are concerned about the Financial Ombudsman Service later deeming the advice to have been unsuitable.
Given the recommendation produced by automated advice systems is reliant upon user input (and there is no human involvement to manually check the quality and accuracy of the data submitted) firms offering web-based advice will need to be confident their software has all the bases covered.
Before Google, YouTube and Skype came to monopolise search engines, video and web-calling respectively, numerous providers of similar or identical services had come before them.
In a growth market, online businesses often multiply before a handful of providers gain a competitive advantage and squeeze out other competitors.
Although some online simplified advice providers may succeed, plenty more may fail.
Michael Glenister is platforms and distribution reporter at Money Marketing