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The rise of the robo-advisers? Don’t count on it

18 April 2019


Technology is making our lives easier in many areas. But as a recent Octopus survey shows, when it comes to important decisions such as how to invest, most of us still prefer the human touch.  

Most people in the UK have a curious relationship with money. As a result, the act of saving it, investing it, and passing it on to the people they care about, is often wrapped up in such complexity that most people never fully engage with it.

And the financial services industry (I’m talking here largely about banks, building societies, insurance companies and investment companies) has participated in all this confusion.

For far too long, companies have been comfortable with having a mostly unknowledgeable customer base. It meant they held all of the power in the relationship, which was a very profitable position to be in. But technology has fundamentally challenged this dynamic, just as it has across a number of other industries.

The most disruptive, tech-driven companies have devoted their huge resources to enhancing the user experience, smoothing the buying process, offering greater choice, convenience and value for money. Just look at how travel websites such as Expedia or Secret Escapes have disrupted the travel agent industry, Uber has challenged traditional taxis or how Amazon has disrupted the business model of so many high street retailers.

Delivering better, quicker, cheaper and on your terms

Everywhere you look, in all parts of everyday life, technology is removing people from the equation and making the decision-making process easier – and cheaper – for us. Users feel empowered in their decision-making, and free to walk away if the experience involves too much friction.

This democratisation within complacent or broken industries has been no bad thing. But particularly within financial services, it begs the question of what comes next. When it comes to financial services, the industry hasn’t shaken its reputation for being inefficient and outdated. It certainly hasn’t embraced technology in the right way.

Robo-advice is just the latest example of financial services companies offering their customers the worst of both worlds. It’s technology that prizes low cost over value for money. It’s the answer companies come up with when they’ve asked the wrong question.

The financial services industry still doesn’t ‘get’ technology

While generic products such as mortgages, insurance and savings accounts have been able to move to a DIY model relatively quickly, the world of investments is very different. Investments by their nature are inherently complicated. Most people simply don’t have the time, energy and know-how to fully do it justice. But that doesn’t mean that an automated process is the right solution.

The latest Octopus survey

Recent research conducted by Octopus Investments isn’t surprising. Of the 2,000 people surveyed, just 15% said they would trust robo-advice (defined as online investment management, offered without any human intervention). Active distrust of robo-advice is most prevalent among those aged 55 and older (63%) and even higher among retirees (71%).

However, the next generation of advisers will need to include an element of digital advice to keep up with the demands of the job.  But as financial advisers learn to rely on technology to carry out more of the administrative side of their role, they’ll be able to focus more on human relationships that require empathy and emotional complexity. They will use and mine data to understand the decisions they’re making, but they won’t adopt technology at the expense of the human element – instead, they’ll use it to enhance it.

There’s still a bright future for advisers

I’m optimistic that the financial adviser community will evolve and become more representative of the UK population. But if I was building the financial advice firm of the future, it would be younger, more female, more ethnically diverse and more technology literate.

That’s why the shift towards ‘DIY’ financial services and robo-advice will be slower than most people think. If anything, I think the demand for human, relatable and knowledgeable investment advisers is only going to increase.

Because people want to have conversations with people, not algorithms. They want to share their hopes and fears. They want someone to tell them they are doing the right thing or, when necessary, be prepared to talk them out of doing the wrong thing. They want to talk about the things that matter to them. And when circumstances change, and life throws something unexpected into their way (as it always does), they need to know that someone will be there looking after the financial side and leaving them free to take care of everything else.

Customers of financial services companies ultimately want to feel good about choosing them, and most would rather pay for advice more if it came with them having a positive influence on their lives and their families.