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Ian McKenna: Give in to the rise of the robots


In a recent study, 41 per cent of those surveyed said they believed obtaining financial advice would be a good way to use artificial intelligence.  The research by Ericsson ConsumerLab further identified one-third would trust the fidelity of an AI interface more than a human for sensitive matters.

The study also highlighted that consumer adoption of new services has become greatly accelerated, with new propositions increasingly achieving mass-market use within just a few years. Organisations that choose to sit on the sidelines could lose considerable market share in a short period of time.

There will be many in our industry that will choose to rubbish such suggestions but there have always been those that have denied science: Galileo suffered with the same problem.

My increasing experience is that the deniers are, in reality, a small if highly vocal minority. Indeed, one adviser technology firm recently told me 90 per cent of current users it approached to participate in an automated advanced pilot responded positively. Clearly, people are looking to grow their businesses.

It may be an uncomfortable message to stomach but our industry has an image problem with a large number of consumers. Many of these will be individuals who struggle to afford or get good value from traditional advice. Surely automated propositions to fill this gap are a solution that suits everyone?

Recent research from Citizens Advice identifies 5.4 million people willing to pay for advice but not at current prices, and a further 14.5 million who want advice but are unable to afford it. By definition, these are not people who can be supported by traditional advice but they do represent an enormous opportunity for automated solutions.

Those looking to capitalise on this will need to find simple ways to communicate complex issues. At the FCA’s robo-advice event last September, one delegate talked of an automated advice process that needed 248 points of data entry by the user.

When you think about it, though, this is actually a relatively modest number of items compared with the extent of the data captured for a full holistic advice process.

Anyone who has spent any time looking at LV=’s Cora automated advice service will see data capture is a lengthy part of the process. Clearly, we are going to need to cultivate different ways  of harvesting the information essential to give advice from consumers but that does not mean it cannot be done.

It is a rare week these days when I do not come across some new digital advice proposition being built for the UK market.

Looking at the, admittedly, limited information some of these services are making available, I will be interested to see how they meet the rules for assessing suitability, pension switching and self-defeating transactions. Rightly, there is no soft option for automated services.

A number of my colleagues are working on a project to map the full extent of factors necessary to deliver automated holistic financial advice involving accumulation and decumulation to meet the full UK regulation standard.

The magnitude of factors that need to be taken into account is daunting but it is nothing less than the challenge faced by human advisers.

It is crucial the FCA keeps a close eye on emerging new services to ensure they fully meet clearly documented and established regulatory requirements.

Although AI is in its early days, analysing large amounts of complex data, rationalising it and reaching conclusions complete with an audit trail and justification is exactly the sort of process to which it is ideally suited.

Increasing evidence of strong consumer demand for AI-based financial advice is not a threat to traditional advisers but an opportunity for the industry as a whole to serve a far wider section of the population.

Ian McKenna is director of the Finance & Technology Research Centre



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There are 5 comments at the moment, we would love to hear your opinion too.

  1. “In a recent study, 41 per cent of those surveyed said they believed obtaining financial advice would be a good way to use artificial intelligence.”

    So the majority did not.

    (Although this is a vacuous question and it is unsurprising that the result is potentially, depending on sample size, statistically indistinguishable from a coin flip. What sort of AI? A Turing-compliant AI indistinguishable from a human? A simple risk-profiling input-output matrix? A Furby? GlaDOS?)

    “The research by Ericsson ConsumerLab further identified one-third would trust the fidelity of an AI interface more than a human for sensitive matters.”

    So a significant majority, twice as many, would not.

    “My increasing experience is that the deniers are, in reality, a small if highly vocal minority.”

    Your increasing experience is at odds with your own research, which suggests that they are a large and highly vocal majority. Don’tcha just love surveys.

    • 10 years ago no one would use Internet banking because it was unsafe and it would never catch on??? There is no point denying the direction of travel- the only issue is when we decide to adopt it to our advantage.

  2. The secret is in the words ‘artificial intelligence’. There are those who still prefer the real thing.

  3. “5.4 million people willing to pay for advice but not at current prices”

    It’s actually not about the price, it’s about the time involved. It doesn’t matter what the hourly fee/charge/cost is, if the process of advice, from A to Z, takes 7-9 hours then that cost will be there. (FSA, CP121)

    The only way of cutting the cost is cutting the time taken: with robo advice, which part of the current ‘full fat’ advice process is being cut out? Which part of the process is the FCA happy to see removed? The fact finding? Cutting risk assessment down to 7 questions? Removing comparative contract explanations? Comparing alternative products? Recommending insurance before investment? Pension before ISA? GIA before pension? Onshore v offshore? Lifestyling? Assessment of prehistoric pension contracts? Cash reserves? Paying down debt first? Capacity for loss?

    Robo advice has its birth in the US of dealing with fund allocation from company pension scheme members, and there it does a valuable job. It only deals with pensions, only deals with that specific pension, that specific range of funds, that specific premium. It has now been extended as a generic investment advice tool – that’s investment advice, not financial advice. Go look at Wealthfront, Betterment, FutureAdvisor et al, it’s all about investing single premiums, its not about financial advice.

    Not only that, but the output of the investors’ input is a managed portfolio, generally ETF for cost, skewed to risk tolerance. It’s not exactly rocket science. This is no digital disruption, because there never has been a personalised solution for group scheme members.

    If Joe Consumer wants to cut the cost, all he has to do is ask for a limited amount of time to be spent on the advice. If he wants to pay a £50 fee, that’s absolutely fine, but all you are going to get is £50-worth of time. Do you want 10 minutes research, or an hour? How much of your financial life do you want me to ignore, and which part would that be?

    I think getting your money allocation right is probably worth a little bit more than that, or is yours not worth that much to you?

  4. One of the reasons that clients use humans is because they struggle to understand what information the techno crowd are actually requesting on their highly expensive data capture systems.

    The use of the words A I are grossly misleading. These are pathway systems which have a designated response to a given answer. There is no thought process or understanding going on. There is no responsibility or checking that there have been no misunderstandings or false conclusions.

    These are just artificially hyped systems for taking execution only orders.

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