The continuing discussion around embracing robo-advice solutions seems to ignore the fact that a large portion of the (disengaged) UK public would need to see financial preparation as a must do in their busy lives for it to really take off. I remain unconvinced.
Perhaps more importantly, however, with such an obvious focus on product today, exactly what we are expected to pay for confuses me. Any of the solutions I have looked at are less than evolutionary. If anything, they are a backwards step.
In recent weeks, planning software providers have been telling us why they are indispensible in the new pensions world, particularly where they provide a market leading economic modeller. I can only presume they now provide a detailed explanation of how it works and who determines the optimum assumptions and mix. After all, advisers are required to know how it works if they are to rely upon it, otherwise its non-compliant.
If they remain “black boxes” then, frankly, they are of no help at all. I still recall one organisation offering a with profit bond analysis, where the front page of its output stated “Not for client use”. Really? What planet are these people from?
I have a message for these providers: take responsibility or take a hike. Why should I, or any adviser for that matter, pay for something where I do not know how – or indeed if – it works.
Yes, we need good tools but we do not need ones we are not able to understand, that do not remove risk or that do not deliver a solution. We certainly do not need ones that provide information on which we cannot rely or take action against if it proves to be inadequate or inaccurate.
This is not a new issue. I am exasperated by the thought that 10 years since I first debated this very problem at an actuarial event in Edinburgh nothing has changed. We need better conversations about risk. Anything that facilitates that is good but anything that does not is just expensive clutter.
Advisers will not be replaced completely by robo-advice as the latter is like the Daleks: they do not do the financial planning equivalent of stairs. Until they do, we are safer than some may suggest.
People need planners that challenge them. The investment approach may be passive but, if you truly wish to add value, your planning and your discussions with clients must be anything but that.
I once asked an audience of IFAs who had recently disagreed with a client. Few admitted to it. People will only value planning if we challenge them and make them think longer term and with more emphasis on the difficult life choices. The choices that require good quality debate and discussion make the robo-advisers pale into insignificance.
The reason that providers are so for the recently announced review into advice is that they hope to get back into the driving seat for control of distribution. Once again it is product first and the client some way behind. Financial planning is a bit like interior design, where the benefits become more apparent over time: a level of patience that few, if any, providers have.
In my world, planning is strategic, advice is tactical and sales… well, it is best described as random. The economic model guys have random at their core, with tactics less evident. Until we know how they work, they remain of little strategic use.
Robert Reid is a director at The Ideas Lab