Do not fall into the trap of letting clients access robos for simpler aspects of financial planning
From time to time, I like to look at the increasing importance of advisers focusing on the hard stuff – the more complex areas of financial planning. I am also very interested in the value of advice. There are few in the financial planning world unaware of the pressure on the cost of advice coming from the continued media focus on it, as well as increased regulation and the impact of robo solutions.
Robos do face their own problems. As with any new initiative, the financial dynamics can be challenging. The demand for capital at launch needs to be balanced with high margins in the future. I imagine some robos are having to run the rule over the cash flow implications of spending a lot to acquire a client that only invests in a low margin product (e.g. an Isa) before leaving a couple of years later.
As if the financial pressures were not enough, the recent FCA review of automated advice has found there is room for improvement.
That said, it would be a brave person who predicts robo solutions will not make more inroads into the relatively easy areas of financial planning. And if there is success in these areas, who is to say that recognition, loyalty and trust could not be created for the brands delivering that? These disruptors might well then look to bolt on the more profitable regulated advice capability.
Some reading this will already recongnise the scenario whereby clients see an adviser for more complex (higher cost) financial planning and use robos for the simpler aspects.
But the threat here is that clients may develop some loyalty to the digital brand. When it comes to needing help with those more complex areas again, that provider may well have developed their own solution to capitalise on that trust and recognition.
There is also the threat posed by the fact the next generation of clients will prefer to engage with a lower cost platform when they first need help with their financial matters. Provided they develop the necessary expertise, that provider is then in prime position to sweep up the more complex advice needs when they arise through the likes of inheritance or business sale, for example.
Let’s not underestimate the difficulty in doing this or the well-earned power of some current incumbents in the traditional advice market. But the future risk needs to be recognised and strategies developed to defend against it.
Forward-thinking advice firms have a terrific opportunity to develop or deploy (through purchase or subscription) their own digital solutions to enhance their existing offerings.
OK, the fees generated from such models will be lower than full fat advice fees but the adviser who can carry out the low cost, easier transactions while continuing to offer high value , expert face-to-face services will be best placed to succeed.
To have a chance of the prize, there will be a need for investment of both time and money. A classic cost/benefit consideration but one that cannot be ignored.
Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn