Cost of acquiring clients ‘threat to robo-advice’

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The cost of acquiring clients is the “elephant in the room” in the online advice debate, says FinaMetrica.

In a report on the robo-advice market, published last week, FinaMetrica says developing a successful online advice proposition requires a significant marketing investment.

The risk profiling tool provider says: “Robo-advisers are very good at servicing customers, but do nothing to attract customers. Putting a robo-adviser to work effectively requires considerable investment in marketing and promotions, with no guarantee of success.

“To us, this is the elephant in the robo-adviser room that is seldom discussed – which we believe is a strategic failure of the highest order.”

The report cites research by Lucian Camp Consulting founder Lucian Camp which puts the cost of acquiring a financial services client at £200.

It says: “Acquisition costs include the costs of initially finding a prospect and then converting those prospects into clients, with the inevitable attrition rate that those conversions incur.

“The cost of acquiring a client for a robo-adviser can be as high as that for acquiring a client for a human adviser. Acquisition costs are likely to be the dominant component of operating a robo-adviser – often far more significant than the cost savings delivered by the robo-service.”

The report also suggests that complaints about online advice can be easier to defend to the Financial Ombudsman Service than complaints about face-to-face advice.

Based on an analysis of around 40 FOS decisions, the report says rejected complaints tend to have the following in common:

  • Evidence of well-documented advice including an explanation of charges
  • Evidence that the client accepted the adviser’s recommendations
  • A clear and well-documented investment suitability process
  • An online process

Co-author of the report and consultancy CGFT director Stuart Erskine says: “If you can demonstrate that an online process was followed then that is likely to be a better defence than a face-to-face process where there is more room for error.

“Complaints can also be successfully refuted by evidence that the client accepted the recommendations, and in an online process you can build this in as a specific step.”

Adviser view

Matthew Harris, Director, Dalbeath Financial Planning

I appreciate that having online evidence that a client has accepted the recommendations would be helpful in defending a complaint. However, there is more than one way to do that and a suitability letter can work just as well. It all depends how clear the online form is, because it is easy to click yes to something without truly understanding it.