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Ian McKenna: How to pick an automated advice partner

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My last column looked at the automated and semi-automated advice propositions from Intelliflo and Distribution Technology. But while these companies have the most users for their existing software, they are far from the only organisations offering technology to help provide lower- cost guidance and advice.

My team is tracking over 150 different digital “advice” propositions of various types in the UK market. Of these, 24 are either offering or developing automated advice processes, with a further 36 focusing on non-advised options.

In addition to business-to-business solutions, an increasing number of the direct-to-consumer players are now also keen to offer their software and other parts of their propositions elsewhere.

How to find the right partners to help in this area is the question I am being asked most at the moment. And while it is a complex subject and will likely be one of the most important decisions any financial services organisation makes in the next few years, the following are just a few of the issues I would advise firms to consider.

Proposition and price

First of all, a firm needs to decide what proposition it wants to offer. Are you looking to provide an advised service, a non-advised service or both? At the risk of stating the obvious, do not expect to charge the same for your automated service as for face-to-face advice. I have seen firms try this in the past and it simply does not work. Consumers buy things online partly because they expect to get a discount. Again, if you are going to offer both advised and non-advised, it is wise to price differently there too.

Products

You also need to decide which products you want to offer as part of the automated service. Very few currently go beyond Isas and general investment accounts, although I would expect to see this change by the end of the year. Equally, are you looking to offer products from a mainstream life company or platform, or are you happy to work with those your automated advice provider may have created themselves?

While it might be desirable to offer mainstream products, few currently have the straight-through processing capability to support intermediated digital services. Abaka is working with Parmenion and AdviceFront is using Transact. Conversely, Scalable Capital and Wealthify are each their own Isa mangers and use Winterflood as their custodian. There are some big names that cannot play in this key emerging market. Large advice firms may be able to negotiate bespoke technology implementations from key partners but these take time and may delay when you can make your service available.

Target clients

It is important to decide who you want to service with your new offering. Is it intended to accommodate clients you have serviced previously but who are no longer economic? Or is the audience new clients who are not viable for face-to-face advice? Perhaps you are looking to take on entirely new customers or support members of auto-enrolment schemes where you have advised the employer.

Integration

One of the most important questions is how the new service will fit in with the existing software in your firm. Does it fully integrate with your chosen back-office or client management system provider? If it says it does, take a long look at the depth of that integration. This is an area where many software suppliers talk convincingly but the reality can fall a long way short. Each external integration is a potential point of failure, so it is a good idea to keep these to a minimum.

Does the system use the same risk profiling tool as you do in the rest of your business? If not, it is probably best to look for alternative options. Mixing risk profile tools is inviting inconsistencies in your suitability process.

By its nature, this sector naturally attracts start-ups. But some start-ups will inevitably fail. Advisers need to consider what the back-up plan would be if a digital advice partner ceased to continue.

Offering automated advice provides a huge opportunity to grow and attract new customers for the future. That said, it is important to recognise the sector is still in its infancy. Advice businesses that want to be around for the long term should be planning their entry into this market. It is vital to thoroughly investigate all the options and understand how they fit into your wider strategy.

Ian McKenna is director of the Finance & Technology Research Centre

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