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Ian McKenna: Automation of advice is inevitable


This week’s Finovate event could not have been better timed. The week after FCA chief executive Martin Wheatley acknowledged that advice can be given online without human interaction it gave a great opportunity to consider the latest innovation in this area.

This is an emotive subject amongst advisers. The original story of Wheatley’s remarks plus the follow up views of Andrew Firth and David Severn are the top three commented stories on Money Marketing online as I write.

The adviser market seems polarized over this issue. Many protest that automated advice is not possible. A smaller, but significant, number suggest it is the future of advice.

Finovate included firms building technology to compliment traditional advice and others seeking to directly compete with it. In a showcase of leading edge technology solutions some demonstrated services that would disturb, if not terrify those who claim advice cannot be automated.

To me, it is important to look at how advice and technology be complimentary. Of all the presentations at this year’s event probably the most relevant to small adviser firms came from This is a consumer personal financial management and financial planning system designed to help consumers take better decisions about their money. Unlike many such services they are aligning with advisers to help them provide digital services to their clients.

YourWealth’s Money Hub Connect provides the ability for consumers to model scenarios from Money Hub and share them back to their adviser. This is delivered via a secure messaging box enabling the adviser to review, edit and if they wish create new scenarios for the client. The adviser can then review these and either agree or provide alternative recommendations.

The service is essentially a very powerful lifetime cash flow calculator from which you can build out individual events and situations. This can benefit from aggregation of information from bank accounts and credit cards to help bring their plan to life, delivering a level of detail that many of the traditional cash flow planning tools used by adviser will find it challenging to emulate.

The latest version of the service costs advisers £1,200 per year for up to 15 users and up to 20 clients using the retail banking aggregations. Additional licenses for the bank aggregation cost £10 per client per year. Fund platform aggregation from Seven IM, Ascentric, Cofunds, Nucleus and Praemium is included free of charge.

Advice Games gave an alternative perspective on the future of advice demonstrating services explicitly designed to disturb traditional methods of financial guidance. It claims that by building a service around measuring consumer motivation it can actually build a better advice process than the traditional face-to-face model.

The founders have a track record in this direction, having successfully built a digital mortgage advice business eyeOpen, which was sold to Aegon. Founder Diederick van Thiel tells me the Dutch regulatory authorities were as cynical as many Money Marketing readers when he suggested using an abbreviated questions set and that taking such an approach could produce the same quality of lending as a far longer set of requirements using the traditional process.

Contrary to regulatory expectation I am told this was successfully implemented in conjunction with a number of major lenders in Holland including Rabobank, ING and ABN Amro.

Advice Games is now building on this experience and mixing consumer motivational profiles with demographic data and gamification to produce an artificial intelligence platform capable, it says, of better predicting the products that are most suitable for a consumer than traditional services using advisers.

The service mixes transactional, social and location data and self learns from every interaction. Presently the service is again only being targeted at mortgage advice although Advice Games says it has aspirations in the investment market too.

There seems to be an assumption amongst many advisers that a move towards technology will disadvantage smaller firms. In practice many of the organisations seeking to deliver advice and guidance in innovative ways are smaller entrepreneurial ventures.

Money on Toast is run by a small adviser firm which says it is offering an automated holistic financial advice platform which can do in a few minutes what might take an hour with an adviser.

I expressed concerns about this when I looked at it in this column last year.

From the demo given at Finovate I still think there are areas where it needs to improve the detail of its offering, but this needs more than the seven minutes allocated to Finovate exhibitors to form a full view. I plan to look again at the service in more detail soon.

Some people who question if it is possible to build truly automated advice point out that meeting the Financial Ombudsman’s standards may be challenging for such services.

Whilst this is true, there are many reasons why I believe technology is potentially better placed than human advisers to meet that particular challenge. I could write a whole column on that subject alone and will return to this subject in the near future.

For now, however, I would point out that the traditional advice model also faces issues with the way FOS works so perhaps this is an area where human and automated advice have a common cause.

This column has focused on issues arising from Finovate Europe that are directly relevant to adviser firms. Space precludes me from exploring the key trends and the extent identified to which they are relevant to the wider market place so I have covered these in a blog on the F&TRC website.

Ian McKenna is director of the Finance and Technology Research Centre


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Free advertising?

  2. I am by no means a Luddite and will accept that on line will grow. But the question is – will it grow in the way we are now being told?

    In order to provide advice on (say) a pension or investment we have had several years of study. We learn about assert classes, efficient frontiers, volatility and all the other hoop-la. We also are immersed daily in investment issues such as the prospect for fixed interest, the traction on consumer staples versus consumer durables, the situation in emerging markets and so forth.

    Are you seriously suggesting that a schoolteacher, policeman or candlestick maker has a handle on any of this? Do you really think that a computer can steer them through this? Even if it may be achievable at outset – are they going to be fastidious in monitoring their investments and switching appropriately? Or are you suggesting that they just bung their money in an indifferent managed fund which may offer them a pretty clock, and then just forget about it?

    This seems a recipe for juicy returns for all except the punter, who eventually will fill his plastic bag with all the paperwork and run to find a real human adviser who can sort it all out and make sense of it for him/her.

    I also concede that planning gizmos for advises can have a use. But if slavishly followed how does this differentiate one adviser from another? Surely there is something to be said for the substance between our left and right ears? After all that is why we all had to get higher qualifications and why we all undertake regular CPD. Life time cash flows no doubt look impressive, but I have yet to meet someone whose life progresses in a straight line or even lines with 3 or 4 variations. I would suggest that there really is no substitute for regular monitoring and adjustments where necessary

  3. The most recent development in adviser technology has been cash flow modelling. A good test would be to sit a client down with no help and see how happy they are with the result. Also, given the infinite number of questions clients always ask, it will be interesting to see the FAQ page of one of these tools.

  4. I feel that a lot of the recent changes to our industry have been rushed through when, over time, as people adapt to a way of life centered around the internet (remember it hasn’t been around for ‘that’ long!), face to face advice will become less of a requirement than is presently the case.

    Let real solutions be created first, and, when they work and are widely utilised, the passage of time will do the rest. Hypothesising about the future is certainly not the answer to the present needs of consumers.

    To force through matters in the way the industry has tried to do, without due consideration as to the current needs of the arguably less IT-savvy) generation of consumers (60 plus, so not that old!), will no doubt create more problems than it solves in the shorter term (not that this seems to matter in the bigger picture).

    It may surprise you to know Ian, but a lot of people out there are not as at one with the IT as you are and still like the face to face bit…Old school I know, but they need to feel the person to know that they can trust them!

  5. People buy from people!

    @Harry. Have you forgotten that schoolteachers know it all?

    Just so long as the online advisers are placed into a different bracket than real advisers when the claims come.

    No vested interests by the author of this article is there?

  6. I have to agree with Ian it is inevitable that automation will be used more financial services. My observation is that advisers are embracing technology but they are still working on the model created in the late 1970s/80s In my 37 years I have many changes but this old model still roles on

    To illustrate the point in the 70 to really the late 90s if I invested lump sum on behalf the client this was the procedure most of I had to go through
    1. Make investment recommendations and get agreement from client
    2. Go back to the office and ring the unit trust house, or send the application to buy the units.
    3. Wait for the contract note from the investment house . This to be forwarded by post ,or delivered personally to the client and asked with a cheque.
    4. Posted back to the investment house the client’s cheque and additional information they requested.
    5. Received unit certificate and forward to client by post or hand.

    Today this is done by the click of a button using a wrap platform and the client sends his money by BACs via online banking

    The question I ask is then why are the advisers not passing on those costs to the clients by way of reduced administration cost . From what I can gather many advisers still using the old model of between 1% to 3% initial and either 0.50 % to 1% renewal either paid direct by the client, or agreed adviser remuneration

    When I comment on this old model of been paid a percentage both initial and recurring income for managing assets, which will be unsustainable going forward. I hear many justify these high fees from the cost time and effort of qualifications to cost of regulation.

    I personally believe that technology is there to benefit the service level for both adviser and client. The commercial reality is that technology is there to drive costs down.

    Programmers will see the high cost of financial advice but also see that they can be make potentially large amounts of income for themselves by producing programmes producing and services that they can put on the website. From the consumer’s perspective if they look sophisticated enough they will use them rather than pay for the cost of advice.

    It is about time as a profession the adviser community woke up and realise the model has to change where technology improves the service and reduce the price to the end consumer.

    One thing is for sure that programmers will not be able to factor into these programs the most valuable commodity of all “ human communication or emotion in making any decisions . No program or Black box solution will ever substitute the human element of sound financial advice.

    The successful advisory practice of the future will offer the personal touch but will keep the price down by using technology.

    RDR is just in its infancy and advisers are looking to recoup cost and time they have spent in obtaining the professional standards Eventually, it will be expected from the public that advisers will either be Certified or Chartered . Again, that will be another competitive edge that technology could potentially erode by saying that these programs have been written and properly will by the most brilliant minds that have these qualifications. In the words qualifications will be one of the marketing managers.

    Sad price is the key driver in this technical driven world Where the consumers know the price of everything and the value of nothing ( to quote Oscar Wilde) The pace of technology has driven them into the mind-set even for luxury goods.

    Moving forward advisers will have to come up with ways of providing advice using technology that can drive down the cost of advice and still make a profit .

    I do not see myself as an investment expert or a funds selector . I see myself as a financial planner that gives holistic financial advice using the technology available to me to implement that advice and strategy .

    I can regardless of the amount of money (£20,000 or even £1,000,000 ) now provide clients with a comprehensive financial strategy based on cash flow modelling around their goals and aspirations. In which the asset allocation is bespoke and understood by them and the implementation and the fund selection is managed by a DFM all on a wrap platform. For far as little as £700 based around the consumers rudiments not mine.

    When I started my practice in 1992 using at the time Prestwood Financial Planning Software it was a pipe dream to have the technology I have availed today

  7. James, a good response. IT is here to compliment what advisory firms already do and enhance the planning and service it gives to clients. Quality face to face advice is worth its weight in gold and will continue to be so. However if IT replaces some of the more mundane tasks or indeed is able to give simplified guidance, and I use these terms carefully, then we should embrace it.

    As an industry we have been appalling slow to embrace IT for the benefits of the end customer and regulation has played its part in being a barrier in this respect.

    All the regular commentators to these discussions know that their clients (teachers excepted!) would not swop the face to face advice they receive for a piece of software. However for those firms that feel this is a threat to their business model then one must question the validity of that model and what they are delivering to their clients that they could so easily be replaced.

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