by Tony Vidler
Will the machines beat the humans in financial advice? Nah…the humans will beat the machines I reckon.
There’s 2 key problems for the robo-advisers: they generally don’t advise, and nor have they evolved enough to substitute for human-to-human communication.
Artificial Intelligence may well change all that, but for now it is bad news for robo-advisers as the human consumers still overwhelmingly prefer to communicate with humans in fairly traditional ways.
I have no doubt that many of what we refer to as robo-advisers deliver useful and desirable outcomes for many consumers. But giving advice isn’t really amongst them as yet. They can deliver information, and can use lots of superb algorithms to wade through probabilities and statistics to determine likely solutions to predictable problems, and they can transact quickly, cheaply and in unimaginable volumes.
Consumers increasingly see the benefit for themselves from these functions, and robo-adviser platforms as we know them today will continue to get good volumes of business I suspect in conducting trasnactions.
But when it comes to getting advice there still appears to be no ready substitute for 1-to-1 human interaction. Increasingly it seems consumers and their advisers are using technology to eliminate inefficiency such as time spent travelling to meetings or exorbitant inner-city parking and office costs, but the primary method for clients making decisions involves consulting with their human adviser. That human consultation may well be shifting permanently to chat or video conferencing, or texting or teleconferences however the human interaction in the advice process remains robust.
In the face of the many technology-based challengers looking to usurp the role of the adviser it would seem to be a good defensive play for advisers to invest in MORE actual human-to-human contact.
The clients clearly value it, and it does separate the advice businesses from the machines. That is pretty good news for the human advisers who fret about platforms replacing them.
Beat the robo-advisers by being you. Talk more to the people who already like and value you. The robo-advisers may well win the majority of battles in the transactional space as they race to price each other out of the market through ever-decreasing margins, but they are not going to win the relationship management war.
However; they are geared up to win in the transactional space. Advisers increasingly struggle to compete on an affordable basis in handling the transaction. A simple local example from our market here:
For an adviser to put in place a personal insurance policy for a fairly standard situation, and assuming there are no particular un derwriting issues and it is a “cleanskin” case takes around 8 hours of (relatively expensive) labour at a minimum. A very clever local operator with online live underwriting and a distinct price point advantage on its pricing (given it goes direct to consumer and therefore has lower distribution costs) can completely underwrite and issue the documentation on average in 16 minutes.
So the consumer gets it done in minutes rather than months, never has to leave wherever their comfortable spot is, and they get a distinct price advantage.
That is going to be tough for advisers to continue competing with.
So the future for advisers: relationships. Invest time in those and be valued as a counsellor rather than a broker. The humans can beat the machines as long we don’t try to compete at their game.