Man and machine: The human face of robo-advice

Robo-advice tools which allow firms to automate certain parts of the advice process are being tipped to take off in the UK.

While much attention has been focused on the launch of algorithm-based investment portfolios, other models are being developed which experts say could help advisers to reduce their costs while retaining the human touch.

But how will these models impact the advice process? And can they turn the robo-advice landscape from a threat into an opportunity?

Adding value

Advicefront, due to launch early next year, claims to help advisers work up to 10 times faster by automating “low value” work, and allowing them to focus on areas where they add most value.

The online system invites clients to input their basic information and goals as well as fill out an appetite for risk survey.

The adviser delivers recommendations, either face-to-face or remotely, while Advicefront also offers tools such as custom model portfolios, automatic portfolio rebalancing and automated annual reviews.

Advicefront chief executive Jose Supico says: “We’re finishing the first build and we have a number of financial advisers and planners participating in our early access programme, which enables them to comment on the platform as we build it.

“A first version of the platform will be publicly available in 2016.”

Advicefront charges advisers a monthly fee based on the number of investors using the system, details of which are not yet available.

Bloomsbury Wealth Management partner Jason Butler is one of a number of investors who have given the company financial backing.

He says: “The problem with robo-advice is that clients don’t want to engage with a machine when making important financial decisions.

“Most clients don’t have complex needs, so it is possible to automate steps in the advice process like going through basic goals.

“The tool is not prescriptive as to what level of engagement you have with the client and that’s what makes it exciting. It is not just a piece of kit.”

Finance & Technology Research Centre director Ian McKenna says this model is leading the online advice market in the US.

He says: “To create a full-blown automated advice system you need very powerful software. Plus, very few consumers are ready for a fully automated process. So for the majority of organisations, a model that allows you to automate part of the process is going to be the right way forward.”

Threat or opportunity?

While the robo-advice models being developed by asset managers and D2C players are often perceived as a threat to the advice market, experts say tools which can automate part of the process turn the trend into an opportunity.

This week, Tilney Bestinvest launched a series of ready-made portfolios for investors.

The service is being offered to those with £100 or more to invest. It will suggest portfolios made up of 20 underlying funds which will be regularly rebalanced.

Investors can also use a telephone helpline or online chat as part of the service.

Fees for the service are up to 0.4 per cent depending on tax wrappers and amounts invested. Ongoing fund charges across the four portfolios range from 1.47 per cent for the Defensive portfolio to 1.59 per cent for the Aggressive Growth portfolio.

A Tilney Bestinvest spokesman says: “We are not describing this as ‘robo-advice’. This isn’t an adv-ised process and at no point do we ask clients questions about their circumstances.

“It is a simple journey to enable investors who don’t want to build a portfolio of individual funds themselves to select a managed portfolio without taking or incurring the cost of advice.”

Butler says: “While some models take advisers out of the process, tools like Advicefront aim to make financial advice more widely available without putting advisers out of business.”

McKenna adds: “The smarter businesses are thinking about which bits of the advice process they can automate and which parts are where human interaction can add a huge amount of value.

“The role of the adviser is really evolving and the smarter advisers that recognise how they need to adapt will be in a good place to profit from this.

“We are going to see a lot more hybrid models being developed.”

Paper vs online 

But some argue the model is more geared towards larger-scale businesses which regularly pick up new clients.

Adviser Advocate chief executive Richard Leeson says: “Firms in the UK tend to be smaller and more local than US businesses. Most advisers I know already have their client base, so I can’t see an automation of the fact-finding process delivering significant cost savings.

“Also, advisers and their clients in the UK are typically in their 50s upwards. Any technology offering hybrid robo-advice will need to overcome any initial reluctance they may have.”

Page Russell director Tim Page argues, however, that advisers and clients are ready for slicker processes.

He says: “A system like Advicefront offers the biggest potential for efficiencies at the back end of the process. Instead of waiting weeks for a wet signature, if a client wants to go ahead with a recommendation to rebalance, for example, they can authorise it online and instructions can be automatically sent to the platform.

“Consumers want the reassurance of an adviser without the traditional hassle of a drawn-out, paper-based implementation process which many find frustrating.”

Hybrid models can fill the advice gap

Polson-Mark-Lang Cat-300.jpgWe commonly use ‘robo’ to mean an advice process with no human intervention, but the models which are exploding in the US do not really fit that mould. They are half-and-half – they have an automated front-end, where the client pretty much self-serves in terms of putting in all their details, and then speaks to an adviser on the phone or via Skype for the advice part.

This advice experience is obviously very different from having an ongoing relationship with a financial planner, but that is not the target market.

If anything is going to help fill the advice gap here, it is propositions like this, which in the US are commonly available all in for between 0.3 per cent and 0.5 per cent – including advice, platform and risk-banded ETF-based investment portfolios.

These are the propositions from Vanguard, Schwab and others which are taking really big money, and significantly bringing down the cost of advice.

IFAs often say robo-advice will not take off because advice needs the human touch, but that is missing the point. We are already starting to see propositions of this type from a number of firms, and it is the bringing together of technology and expertise that changes the fundamental dynamic of the market.

Arguably, it lets advisers concentrate still further on the parts where they make the most difference – in genuine client interaction rather than in the basics of fact-finding and report construction for clients with relatively basic requirements.

Should advisers worry? Not if their businesses are aimed at those with greater affluence or those with more complex requirements.

Hybrid or full robo-propositions work well for those with simpler needs. Complex decumulation or multi-jurisdiction tax planning, or intergenerational wealth transfer is another thing entirely.

To put it another way, this is not necessarily aimed at “core” IFA clients, it is aimed at people who do not need or want a completely face-to-face relationship, or who cannot afford it.

Mark Polson is principal at The Lang Cat

Adviser view

Dennis Hall, managing director, Yellowtail Financial Planning

We are not in the low- value client market, but Advicefront would potentially be of interest for higher-value clients too if it could help bring their advice costs down. There are some other options out there which claim to do a similar thing, for instance, by working with an existing back-office system to automate rebalancing of portfolios. Most firms will have admin staff to help with lower-value work, but the potential to automate repetitive tasks could reduce costs and take out the potential for human error.