At a time when our marketplace is going through an unprecedented level of change, there must inevitably be a real risk that industry issues will divert organisations’ attention from major changes that are taking place in society.
For some time, I have been concerned that RDR and auto-enrolment are having exactly this effect.
Having just returned from three weeks in America visiting a number of the “next generation” advice propositions, I believe more than ever that organisations of this the type will fundamentally transform the advice process in this country over the next five years or so.
These firms broadly fit into the category of algorithm-based advisers and harness powerful technology- driven monitoring and reporting capability to help consumers more effectively manage their finances.
Significantly, none of the different firms I met were operating the same business model, each was working on highly innovative new ways to deliver advice to consumers.
Some continue to see an active role for humans in the process but even those are putting technology propositions far beyond anything currently available in the UK at the heart of what they do. The benefits to the consumer in terms of greater financial education, lower costs and higher service levels are frighteningly obvious when one looks at what is on offer.
I would now even go as far as to say that RDR and auto-enrolment may end up being something of a sideshow relative to the extent of transformation that will be driven by ABAs.
Currently, there are only a handful of organisations currently building pure technology-based advice solutions in the UK. None I have seen to date are anywhere near as advanced as those I have seen in the US. There is an increasing body of research in the UK that demonstrates major changes to consumer behaviour which are fundamentally altering the ways in which people communicate.
JP Morgan’s recent research on consumer attitudes to paying for advice suggests that 800,000 UK households might pay for an on-going advice service but that a further 2.4 million families would consider paying for a case-by-case-type service.
This is where algorithm-based advice can really come into its own, enabling advisers to deliver an ongoing advice service for costs that would more traditionally be associated with transactional activity.
JP Morgan’s research also identifies that e-commerce is the preferred method of communication across all age groups. This ties in with the recent Ofcom research which identified that for the first time, the volume of mobile telephone calls has declined as consumers move to text and other online communications.
Ofcom’s research also identifies fundamental changes in the way in which consumers are sourcing information. One of the major new trends is “Turfing”, when people surf the internet using perhaps a laptop but predominantly a tablet or smartphone at the same time as watching a TV programme. Tablet ownership in the UK has increased from 2 per cent to 11 per cent of the population in just 12 months and if you look at the demographics of ownership, not surprisingly, it is the wealthier consumers who are the largest group of adopters, in AB socio-economic groups it nearly doubles to 19 per cent.
There is a rapidly increasing trend for consumers to see something mentioned on TV and immediately use a mobile device to research the subject in more detail. Google suggest consumers are even more likely to look for financial products in this way than they are other goods and services.
In the UK, we are not used to seeing financial institutions promoting the ability for advisers to access financial plans online although Lloyds have been promoting some of their online planning tools capability. In the US this is becoming increasingly commonplace.
This is an obvious area for further development. Some of the better adviser software products now offer full online reporting to clients, not just via websites but to smartphones and tablets. I believe it is crucial for advisers to encourage clients to think of them as the first place to go to for this type of service. This capability is still some way behind the sort of propositions I have been looking at in the US but it is a valuable first step.
Significant changes in consumer behaviour combined with the prospect of hugely efficient new propositions arriving from the US make it more important than ever for advisers to be structuring their businesses so that they can increasingly harness technology within their businesses to enhance their overall customer value proposition.
It may transpire that the disciplines that RDR will bring with it will in practice be a major benefit to firms as they evolve to deliver the optimal balance of automated and personalised service.
Many firms’ short-term profitability and longer-term sustainability will depend on the extent to which technology is driving their operations. Any firms that have not yet made the transition to embedding technology across their operations should do so as a matter of urgency if they are not planning to close at the year-end.
I have a number of further trips to the US and Asia in the coming months to look at leading-edge advice technology and will be sharing some of what I find.
It is important to see the impact of these potential game-changing developments in context, realistically algorithm-based advice will probably not become the dominant advice channel for five years or more, however, adviser firms, life companies and platforms that wish to be able to be key players in the next 25 years of financial advice need to start learning what they will need to do and develop strategic plans to deploy such services if they wish to continue to be at the forefront of our industry.
Ian McKenna is director of Finance & Technology Research Centre