When the term robo advice first entered the financial planning industry’s lexicon, it sent shock waves through its ranks. Could automation spell the death of the financial planner? Could this low-cost, efficient, time-saving advice alternative to the traditional approach to financial planning, involving face-to-face strategy meetings, statements of advice, and endless documentation, be the wave of the future?
Well, after the industry “took a Bex and had a good lie down”, it was generally decided the financial planning industry did have a future. Sure, automated financial advice would cause disruption; but the need for specialist advice around issues such as estate planning, investment strategy, and SMSF compliance (thank you, Scott Morrison), to name but a few, would not only ensure the industry’s survival but its growth.
The analogy made – and largely accepted – was to compare Uber with financial planning. Yes, Uber had disrupted the taxi industry, but the overall market for third-party transport had grown. Consumers had benefited and smart taxi operators were still making a decent living.
But at the risk of sounding like a naysayer, I’m not so sure. It seems to be this general assumption is based on the premise that automated financial advice will stand still and that the way consumers want financial advice delivered will not change.
So, while we largely think of Uber as disrupting the taxi industry, it is much more than that. Uber is now one of the largest issuers of debit cards in the US, a decision prompted by the need to take its drivers out of the cash economy and into the world of online payments where their passengers live. It’s a classic example of the changing nature of how financial advice and products are delivered.
This is no science fiction, the technology exists today and is only getting better.
Financial advice using artificial intelligence is making enormous strides in what it can offer and when and where it can be offered. Think of your mobile phone of just 10 years ago and how that piece of technology has evolved. Already robo advice is doing more than its original proponents thought possible in terms of rebalancing an investment portfolio (typically robo advice recommends passive, not active, management), producing performance reports, and doing all the administrative work so necessary under our complex legislative regime.
But robo advise that we think of as portfolio construction is only a small part of the financial advice that can be offered online in an automated fashion.
Today, much of this advice can be done quicker and more efficiently than the traditional financial adviser and provided when the consumer needs it most and on their mobile phone. And those using these services mostly don’t expect the personal touch; they are happy with an email and an app. It’s how they communicate with their families, their peers, so why not their robo adviser?
So, what happens when a lower cost, more transparent and efficient system, becomes more sophisticated in the advice it can offer. And improve it will. To think otherwise is fanciful, because if there is one thing we do know about society is that improving technology is a treadmill we can’t get off.
It’s not that all technological change is positive for society; it is to argue that that it can’t be stopped, as that group of 19th century English textile workers and weavers, the Luddites, who destroyed weaving machinery in a vain attempt to stand in the way of the Industrial Revolution, quickly discovered.
Certainly, there is no shortage of reports peering into the future predicting a far more pervasive role for machinery and artificial intelligence in our lives, whether it be driver-less cars or artificial intelligence providing legal and medical advice, and it’s difficult to believe financial advice will be immune.
Once the premise about financial advice provided by artificial intelligence is constantly improving is accepted, life will be that much harder for the planner. For the commercial reality they are facing is that more consumers, no matter where they are in their life cycle, will be attracted to this form of financial advice. The cost, the delivery via mobile phone, and when it is delivered arguments will prove highly persuasive. So how does the financial adviser of today survive?
There’s no obvious answer to that question, but let me suggest three ideas. The value-add of personal service cannot be stressed enough. Just as niche travel agents have survived – indeed, some have thrived – in the internet era, so too will the financial adviser who knows how to add that personal touch.
Embrace technology. That doesn’t mean offering quasi robo advice; it does mean taking every opportunity to use technology in enhance your practice’s efficiency.
Finally, never stop looking for that piece of advice, especially investment advice, that keeps you ahead of the curve. Clients will not only thank you, but spread the word about the excellent advice you offer. Even in the day of tweeting, email and text messages, word of mouth still counts for much. To misquote that old saying, “keep your clients close, and your good clients closer”.