Your IndustryOct 9 2015

Robo advice models still need the human element

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Robo advice models still need the human element

Robo-advice is growing, but until it can fulfil that “human element”, it will not pan out as well as people may hope, a technology specialist has said.

Imran Gulamhuseinwala, a partner and Fintech leader for consultancy EY, told the FCA’s Robo Advice Conference in London on 30 September that US robo-advice models were growing less quickly than expected.

He said there had been a “sense of frustration” around customer acquisition difficulty and the capital payback being too long for some backers.

In addition, the human element could not be ignored, he said, adding: “The fundamental model of advice being part of people’s routine isn’t quite panning out, with some finding that an element of human interaction may be required at certain key junctures.”

Also speaking at the conference, Thomas Fortin, head of retail technology at BlackRock, which recently took over FutureAdvisor, said that most US automated advisers were “far away from being profitable and have found it expensive to gain clients”.

Meanwhile, Harriet Baldwin, economic secretary to the Treasury, told delegates at the same event that a start-up that wanted to enter the automated advice space was told it would have to ask consumers 247 questions to comply with regulation.

She said: “Both the government and the regulator are looking to develop a ‘sandbox’ for innovation in this space.

“This ‘sandbox’ could be a safer space for firms to experiment with ideas for consumers without the full burden of regulation.

“Once this is up and running it could help test potential ‘robo-advice’ models,” she added.

Approximately US$2trn (£12trn) will be managed under ‘robo-advisers’ in the US by 2020, consulting firm AT Kearney has predicted.

Adviser view

Last week the chairman of The SimplyBiz Group Ken Davy said that all technological innovation, in any industry, brought with it the potential for both positive and negative effects.

He said: “However, until robo-advisers learn how to empathise and understand an individual’s dreams, aspirations and fears for the future and how life’s challenges will so often intrude, they will not pose a threat to the professional financial adviser.”