by Tony Vidler
Robo’s are a threat to advice businesses in much the same way that a chilly bin is a threat to the sale of refrigerators.
Most of us own both and use both, right? The advisory practice of the future will also be embracing multiple ways of delivering what consumers want…sometimes a refrigerator is not the right solution, like when you’re planning a picnic, right? I believe smart advisers will include robo’s in their business models…heresy I know! But hear me out on this…
Many advice businesses, and quite a few institutions it seems, have believed that automation of product placement or simple advice is the devil that will kill financial advisory businesses, and I disagree with that line of thought.
I’d suggest that robo’s are actually a natural evolution of the delivery of good advice, and should be welcomed by smart advisers as part of their business development. So for me there is no “maybe” about it; those advice busineses that plan to be around in 10 years time should be working out how to use robo’s and simple product or advice delivery through their own controlled platforms as fast as possible.
Humour me while I explain, and let’s slip back to the analogy of refrigerators and chilly bins for a moment to put things in perspective.
Both are used to achieve the same outcome: keep your stuff cold and fresh so that it is edible.
However, they have different designs and different features and come at vastly different price tags because they do it in vastly different ways. While the desired outcome is the same from both, their purpose is not.
The purpose of one is to produce a cool and healthy food environment for a short duration, in the most portable manner possible (Grandma can pick it up and move it, right?), at a price point that makes it pretty much accessible to the majority of society.
It is not intended to be a permanent solution to food storage, or even a solution beyond a couple of days. it is a temporary solution to a particular need at a particular point in time. It is perfectly designed to deliver that desired outcome…and as far as I am aware nobody really hates chilly bins for it. Not even refrigerator manufacturers – they don’t appear to hate chilly bins either. Most refrigeration engineers and designers own a couple of chilly bins themselves I would guess.
A refrigerator on the other hand delivers sophistication and durability and bespoke “chilling”. I don’t know about you, but we’ve got separate little drawers for fruit and veggies, as well as other compartments for cheeses and eggs and stuff….and various temperatures delivered to the different drawers and storage areas to optimise freshness of eggs or apples or milk….very clever isn’t it? And it can do ice cubes. Awesome for Friday at 5…
Yet the desired outcome from me as a consumer is fundamentally the same for both.
So….back to robo-advice, or robo’s as we seem to prefer calling the financial services version of The Terminator. If robo-advice is defined as an automated or algorithm based method of delivering financial services solutions and/or products to consumers without the intervention of a human, then that seems a pretty useful purpose to me.
There are any number of relatively simple financial services functions which an 18 year old new workforce entrant does not require advice for. They might however require the functionality to be able to transact quickly, cheaply and effectively. Similarly, even for someone like myself there are financial services and products that I simply do not want to waste time engaging in a conversation over, let alone someone trying to wrap 6 hours of best-practice-compliant-paperwork around. I mean, if I want to buy travel insurance for example, I pretty much prefer to do it from my phone after a quick search and 3 minute read of the terms and conditions. In fact I’ll probably do that from the back of the taxi on the way to the airport. Human intervention in that particular process is actually irritating.
Let’s begin by thinking about the average consumers’ participation in using financial products and/or advice over their lifetime and roughly map out what is likely to be the optimal way that they will engage and the optimal way for us to deliver, then it might come together like this:
A youngster just entering the workforce might be auto-enrolled in compulsory super, has to work out some tax and banking stuff and buys some products, then they are building credit and savings history with the use of different bank accounts and so on. A fairly normal start to entering the workforce and becoming a financial services user one would guess. In ensuing years life will get more complicated – the student loan will be a monster to deal with early on so they will require advice, rather than a product solution. But just advice about that at that stage. Later, family planning is probable as is taking on different sorts of debt and risks and life will become more complex. So do the solutions to these issues – they become more complex too. Life will also become busier, and convenience and clarity delivered by a professional who is able to understand key outcomes and mix the use of tools and services to suit will become more important.
Sometimes however there will be a requirement for detailed and thoughtful planning advice which is bespoke. Many aspects of life will become interwoven, and it often becomes impossible to separate taxation consequences from investment or borrowing decisions, and overlaying those decisions will be the need for astute estate planning and ownership considerations. Anticipating and then developing risk management tactics while pursuing those financial planning objectives may well involve dozens of different decision points and considerations which account for anticipated cashflows together with probable performance of the investment and taxation planning…..you get the point:
There is a time in many consumers lives where automation of service delivery will not be able to compete in all likelihood with the sophistication of the well-trained and experienced human brain that can consider a thousand variables which are seemingly unrelated while taking into account the body language and non-verbalised reactions of a human being – which is a key part of designing a great financial plan.
But then there are times in many consumers lives where they just need a simple solution. Preferably fast and cheap.
The smart adviser with an eye on the future, and who has a genuine concern for the well-being and satisfaction of their clients, will be looking at how to build robo-advice offerings into their service offering – if not build them into their practice.
We welcome automation as practitioners in virtually all aspects of our commercial and private lives – from the simple functions of being able to set up automated banking transactions so we no longer have to remember to pay the electricity bill, through to using auto-responders from our CRM and email systems to engage with prospective new clients who do not wish to physically talk to us just yet.
Robo’s are not our enemy. Robo’s are a natural evolution in delivering great service and useful functions in a rapid and cost effective manner to our customers who are living in an ever-faster world with greater demands on their time and money.
Smart advisers will get in tune with the evolving needs of their customers and figure out where the lines of simplicity and complexity are triggering holistic advice, and then build in automated or robo-offerings for everything that sits on the simplicity side of the line.
That is what the next generation of customers – which is todays 17 year olds as well as todays sophisticated and smart 55 year olds – already expect.
Any adviser choosing to ignore that reality is basically consigning themselves to dealing with an increasingly smaller pool of prospective clients, and eventually making themselves irrelevant as the consumers they seek as clients will already be well engaged by another financial services provider elsewhere.