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Navigating choppy waters: Will advice or technology led models flourish in the future?


Advisers will be aware of the recent hive of activity around businesses that provide services for DIY investors. Interactive Investor is to acquire TD Direct Investing in a move that will create the UK’s second largest online broker, while other firms have revealed plans for new direct-to-consumer propositions or their particular take on rob-advice.

But in a recent Money Marketing article, investment research firm Exane BNP Paribas analysts Gregory Simpson and Arnaud Giblat suggest the market is shifting more towards a demand for advice-led models, particularly against the backdrop of a changing environment for things like pension tax relief.

Given financial planning and investment management are characterised by complexity, are firms that provide fully regulated advice better positioned for the financial services market of the future? Or will advances in technology enable non-advised services to flourish?

The finer details

It seems advisers do not see such services as a threat, as they are confident in the value of the regulated advice they give.

For example, more people are going into flexi-access drawdown as a result of pension freedoms and reductions in annuity rates but, as Intelligent Pensions managing director Steve Patterson points out, there are dangers for those doing so without advice.

“It is shark-infested waters for people who don’t know their way around. The risk of financial ruin is high as a result of the combination of poor investment strategy and excess spending of pension pots, as well as an underestimation of how long people are going to live. The danger is that the sharks are underneath and people don’t know they are at risk until it is too late. It will be a tragedy if people run out of money as a result of poor investment management and poor cashflow control,” he says.

Portafina managing director Jamie Smith-Thompson says that, while new propositions may make the DIY route easier or more convenient, they are only improving an existing market.

It is shark-infested waters for people who don’t know their way around

“Technology has certainly helped to make some aspects easier but the focus is really on people who already know what they want and are confident enough to make those decisions,” he says.

“Direct to consumer offerings aren’t helping those who do not know what to do, and they’re not designed for that. The truth is the finer details of financial products can be very complicated, which is one of the reasons IFAs study for so long to become qualified.”

Royal London pension specialist Fiona Tait believes people that engage with advisers will continue to do so because of the existing relationships they have, and this is important.

She says: “There are lots of options out there and people have an incredibly difficult series of decisions to make. Retirement is just one of those. The best results will be where people engage with financial advice and, although we can’t force people to do so, we could do more to direct them towards it.”

Is robo-advice a catalyst?

Last month, financial services technology provider EValue published a white paper entitled Robo Advice – The Catalyst for Transformational Change. Written by its strategy director Bruce Moss, the paper points out robo-advice is a term used to describe a wide range of services, some of which have nothing to do with advice (see table). According to Moss, any loose definition of robo-advice would incorporate the idea of providing investors with digital tools to help them make investment choices.


“It potentially provides a much lower cost distribution option than face-to-face advice, which is obviously good for profitability but also makes it possible to serve less affluent consumers for whom the cost of full advice would be unreasonably high,” he says.

Moss says there is very little evidence of any widespread consumer demand for robo-advice-type services.

“True, there is a small segment of consumers, numbering perhaps up to about 1.5 million, who are highly engaged with investing. But beyond these, there is little sign of pent-up demand for new ways of making investment choices,” he says.

However, for Moss, it is more about how digital technology can be used to make financial advice less expensive and more reliable, accessible and engaging.

Some in the industry believe automation will have a range of uses, from engaging younger people to enabling advisers to cater more efficiently for some segments of their client base.

Robo-advice is not real advice; it is a mechanical system that can be manipulated

Mattioli Woods senior technical and development manager George Houston says: “My 19-year-old daughter would rather deal with a computer than me. I see how she manages her affairs online and she will get to the stage where she has exposure to e-enabled advice but she will eventually need to see an adviser face-to-face.”

Houston is concerned that the greater the complexity, the greater the challenge for automation. And this is a view shared by many in the industry.

Patterson says: “Robo-advice is not real advice; it is a mechanical system that can be manipulated. People can get the answers they want and they will believe what they want to believe, whereas a good adviser will show them the impact of their current course of actions and a ‘what if’ scenario, which might be to do with the cost of living, or outliving, their normal life expectancy.”

For Combined Financial Strategies director Jonothan McColgan, robo-advice will not stop people making bad decisions.

“Pension freedoms have given people control over their own money but it becomes a moral debate: you can give them choices but with that comes the ability to make bad decisions. Some people don’t go to the dentist; some people don’t take advice. You can’t force them,” he says.

Moss acknowledges that the options considered by robo-advice are simplified but says this is because it is in its infancy. “In its current form, robo-advice is unable to meet the needs of consumers who have more complex financial affairs or might appreciate more sophisticated advice, for example, tax optimisation of retirement income,” he says.

Over time, however, he expects the capabilities of robo-advice to expand, with advice as a whole looking very different in the next five to 10 years.

Embrace technology and change

Bradbury Hamilton managing director Sheriar Bradbury says that most of the advisers he knows and speaks to are doing “incredibly well”. However, he points out that if a typical firm generates the majority of their income through funds under advice and some clients move towards automation and self service, this will eat into recurring income streams. Even at the top end of the market clients paying large fees may want to save money and pay selectively for full advice.

For this reason, he believes advisers will need to adapt and embrace new technology, offering three basic solutions: a robo one, an intermediate one that works remotely through something like Skype, and full advice.

“Advice firms taking robo-advice on board can move the client up the value chain as they accumulate more funds and their needs get more complicated,” he says.



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  1. […] further problem can involve the digitalisation of accounts. The majority of custodians will still provide a mixture of digital and manual processing. […]

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