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Nic Cicutti: Why I’ve changed my stance on robo-advice

Nic Cicutti

Last week I found myself on the phone to one of my favourite industry commentators. This person and I have known each other for more than 20 years, from back when I was a rookie reporter at Money Marketing.

Now that I am no longer living in London we talk less often and probably only see each other once every two or three months.

But I still find talking to this person helpful – and challenging – in terms of how to order my thoughts. Last week was a case in point: at one point, apropos of nothing much in particular, this person asked: “Have you ever written something and regretted it afterwards?”

My first instinct was to say no, I have never regretted writing anything. After all, I have, happily, never punted products to readers that blew up in their faces five or 10 years down the line. Almost all of my calls, from mortgage-linked endowments to expensive personal pensions, passing via PPI products turned out to be right.

But after I put the phone down, two thoughts occurred to me. The first is it is easy for a journalist not to get things badly wrong, mainly because most of the time we are warning people against making mistakes, not encouraging them to make potentially momentous decisions.

It is one thing to point out that unless you have a damn good idea of what you will be doing most of your working life – with no expectations of divorce, unemployment or other potential human disasters – a product that commits you to making the same payment every month for the next 25 years is not a good way to pay off an interest-only loan. It is another thing to come up with the perfect alternative to meet that same need.

The other point is, as often as not, what sometimes lets down our writing is not the overall argument, which may well be right, but the use of an infelicitous phrase or the emphasis on an issue that, with hindsight, was probably not as important as we thought.

One example that comes to mind is a column I wrote last year about robo-advice. As readers will be aware, I have long been a huge fan of standardised financial advice, using technology to analyse financial needs and present solutions in a way that is objective and less subject to human error.

When discussing it 15 years ago, I spoke in terms of a “Snappy Snaps option”, with operatives in stores up and down the country running franchises that offered standardised advice to potential clients. More recently the argument has shifted to robo-advice, more or less the same process – only you get to wear your own suit.

My mistake, however, has always been to counterpose the process to what advisers do now – throwing a few gratuitous barbs into the mix, just to get everyone’s blood flowing.

When writing about Snappy Snaps 15 years ago, I said: “The only minor drawback is that were I running it I’d not want to hire 95 per cent of the current IFA population.”

And when discussing robo-advice last year, I wrote: “The real reason for the likely exponential growth of robo-advisers over the coming years is they are generally much more reliable than their flesh-and-blood counterparts. In a straight choice between humans and robots, the machines win every time.”

What I should have said was something different: the potential of robo-advice is it offers every adviser the opportunity to develop a business that meets the needs of a growing segment of the UK population for whom this is the preferred way of accessing financial services.

Crucially, this segment is no longer definable in terms of age, social class or even wealth. Whereas a decade ago it might have been possible to argue there was a dividing line between tech-savvy youngsters who were more likely to come from middle-class, affluent backgrounds, nowadays everyone has access to a smartphone and shops online.

Nor is the argument that the most affluent clients prefer personal to digital interaction sustainable any longer. As Intelliflo’s executive chairman Nick Eatock pointed out last week, almost two thirds of ultra-high-net-worths, as he called them, expect “all or most of their wealth management relationship [to be] conducted via digital channels” in the next five years.

Which is why the suggestion I saw last week that some 70 firms are road-testing a new robo-advice service called Advicefront, which incorporates financial planning questions, is so important.

Advicefront is backed by, among others, ex-Bloomsbury Financial Planning principal Jason Butler. Also involved are the risk profiling business Finametrica, the investment platform Parmenion, now owned by Aberdeen Asset Management, and paraplanning firm The Timebank.

If confirmed, this suggests that rather than comparing robo to human advice, the two can meet in the middle. The option of a service that shifts easily to meet clients’ requirements, be they for human contact or for digitally-based interaction, is now very real.

Perhaps it is time for advisers to start thinking about how to integrate robo-advice into their businesses – and for me to stop counterposing the efforts of thousands of advisers to a mythical future where that same work is performed only by robots.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 15 comments at the moment, we would love to hear your opinion too.

  1. No Comments to his latest hogwash – hardly supprising !!

  2. Not all the arguments ‘t jump out at me as being hugely convincing, but I think that the conclusion is more or less right – and could go further.

    There is no question that it is possible to write algorithms to give advice. And it has probably been possible for many years. How long, I am not sure. Perhaps some point between computers being able to outplay humans at chess and them being able to outplay humans at Go?

    The reason why it has not been done before now is that there has not been sufficient demand. While consumers have been happy to go to flesh & blood IFAs to get their advice, and IFAs got a commission stream sufficient to keep their businesses going, everyone was happy. Why go through all the effort of trying to code it up and then face the problem of getting the authorities to sign off on it (effectively taking responsibility in the event of miss-sales).

    But things have changed. RDR and the commission ban has resulted in a huge proportion of the population not being prepared to pay for what it costs to advise them. At the same time Osborne has given those same people a lot more responsibility for significant financial decisions (in spite of all the evidence pointing that they have never previously managed to engage meaningfully in the decision making process). Hence the advice gap, hence the demand, hence the era of Robo advice.

    It is probably true that some of the initial products will be offered as tools to help IFAs, given away free; whereas in fact the hidden agenda is to get IFAs to use the algorithms in the field, thereby testing them out and unwittingly aiding the development of something that is after their lunch. But that does not mean that the sensible approach is to resist, and here I think I agree with Mr Cicutti.

    Robo advice is going to be hugely disruptive; the IFAs that survive the disruption will be those that are most successful in integrating it into their business models and then evolving those models as the advice market changes – as it surely will.

    • Yep – We use Truth/Prestwood – theoretically, we could get the client to input all the data and play with scenarios themselves, the clients I have just been to see with my trainee would be more than capable…. BUT, they don’t know how to use the software and it is VERY time consuming, so my trainee will do most of the donkey work with/without them and I will top and tail the meeting. Neither of us are replaceable (yet) and I think it will be unlikely before I retire or him and I am only 51 and he’s 25!

      • I think that the sea change will come when the software itself becomes regulated. At the moment, advice needs to be given by a regulated individual. Given this forced intermediation, the software does not need to be designed to be particularly easy or quick to use – it will be used by an expert. But if and when the Government forces FCA to agree to signing off software that effectively delivers advice, I am sure that the designers will raise their game and produce something useable by Jo Public (at least the ones that eventually succeed will do).

      • The problem with Truth is this a 20th century tool designed for advisors, not for clients.

        I have an US client who has a Betterment account and the technological advance is huge. Before that we would have recommended an US financial planner and regret this one year latter. Now I recommend Betterment and help the US clients lay out their financial objectives and leave the system to do all the ground work.

        We cannot wait to have Betterment or Vanguard here in the UK, offering the same robo-advice service as in the US. It will take away all early accumulators from us (usually clients’ children) and make us more profitable.

  3. Absolutely at the cutting edge Nic, as usual. This morning I had a 78 year old couple wanting advice on their portfolio and general financial planning vis a vis IHT and Care Fees too. Of course, if I had a robo advice offering they could happily go online and pick and mix for themselves, just like you used to be able to do in Woolworths.

    • I suspect that there will be a need for machine-wrinkly intermediation for some time to come. But that does not mean that it will require the same level of human technical expertise as it does currently – just someone who can explain the questions to the customer, and input the responses appropriately into the program.

  4. Hmmm, I think there’s a mis-match in thinking here. The quote from Nick Eatock highlights this. He talks about relationships which is very different from advice. HNWs want their advice from a person. Once they have that they may well want to interact with their adviser electronically for convenience.

    Timing will be everything in the robo-advice world. There is no doubt that the younger generation will want it but the truth is that they don’t currently hold the money. Where large amounts of money are concerned nearly all the older generation want human advice. It will be a slow uptake in this market.

    The mass market offers more opportunity but as the current players will be aware, it’s a very tough sell.

  5. Robo-advice is to financial service what a rubber dolly is to sex. It probably works and is no doubt a lot cheaper than the real thing, but would you really want to try it?

    Anyway, much of this assumes that the less well-off segment of the public are that keen to obtain some sort of financial input and that they will sit at their computers (if they have one) and diligently go through what they need for the money they haven’t got.

    The better off probably have better things to do with their time and use and IFA much as many of us use a travel agent. We could sit at a computer doing it ourselves, but some of us have a life and just ring up the travel agent and ask them to arrange it. The extra it costs is less than the cost of our time, energy and effort and the agent can do a better job as they are the experts. And of course if things go wrong we have recourse. The agent can sort it.

    There is Robo advice and there is the Real thing.

    Firms may be keen to have this in their armoury. They will cut out staff costs. They may hope that they avoid complaints as the clients have DIYed, and that they will make a killing as they may even be able to take commission. If it looks like a scam & walks like a scam, it probably is a scam.

    • Harry, with due respect what is a “travel agent”, as I haven’t use one.

      If these were those shops with nice holiday pictures in the windows, which nobody went into, I have to report that they are all closed around here, some went into liquidation, some went online only with little or no human intervention.

  6. Robo advice, whatever next Robo Cops. Na, it will never happen.

  7. Robo advice was called direct to consumer D2C , a few years ago wasn’t it, I remember many firms chirping about launching it and commentators predicting the end of the IFA at the time.

    Then it all went quiet, I know some firms who launched and quietly closed the operations , other disrupters as they call themselves are losing money hand over fist and telling all and sundry what a success they are.

    Robo advice will probably work for the lower end mass market , but people with real money will want to look you in the eye if handing over substantial amounts of their pension funds or hard earned cash.

  8. The other point Nic is missing is that a lot of financial products are sold not just bought. Clients sometimes need to be advised, dare I saw persuaded, to buy pension, life assurance and to save.

  9. Nothing much new under the sun – some folks choose to DIY all sorts of things. My Brother in law did his own extension/central heating/rewiring (pre certification)/car servicing et al. Although a “white collar” worker by trade, he was motivated enough to undertake the necessary. Me, I’ll DIY the decorating and cut the grass but I pay someone else to do the stuff that doesn’t interest me. Same thing for clients, those who are interested will make and learn from their own mistakes, those who aren’t will either guess or seek help.

  10. @ Eugen Neagu

    You must be living in a parallel universe or in an out of the way location. Modern travel agents don’t really rely on high street ‘pop inns’ any more. (Nor did I when in practice).

    They have a loyal and regular client base made up of corporate travel and individuals who travel somewhat further afield than Benidorm.

    I’ll grant you that those wanting to go to Spain or Greece hardly need a travel agent. If you want to go on a tour of South America a travel agent will probably make things far easier for you than messing about on the internet. Just like financial services. The lower end of the market will buy their life cover from Tesco and those with a decent bank balance will use a real live IFA.

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