OpinionFeb 9 2016

Putting financial futures in hands of lines of code

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For the financial services industry, the rise of artificial intelligence comes in the form of ‘robo-advisers’, computer coded software which uses algorithms to provide advice.

Robo-advice promises to be big business.

A report from AT Kearney predicts that by 2020, robo-advisers will manage about $2.2 trillion of assets in the US.

Innovation in the financial services industry is to be encouraged.

Changes to pension rules mean increasing amounts of decision making (and the risks that come with it) are being placed at the feet of the consumer.

Help is required for people of all wallet sizes. However, if robo-advice is to really make an impact then establishing trust is critical.

Customers must feel they can trust a provider of advice. That they can trust not only the advice itself, which is vital, but also that they can trust them with their confidential and often sensitive information.

You don’t have to look far for evidence of where this trust can break down. The hack of dating site Ashley Madison, moral arguments aside, is proof that disgruntled people can cause huge damage to organisations and the data we trust them with.

In this case, jeopardising and no doubt ending many marriages.

Client relationships and human interaction are critical to trust, and certainly so when finances are involved

Companies must demonstrate that they can be trusted with customer data and, in the event things go wrong, have planned and rehearsed communications responses.

If we can be assured that our data is safe, one significant barrier to robo-advice is lifted.

However, we then come across a second.

Client relationships and human interaction are critical to trust, and certainly so when finances are involved. How will we trust the advice from a software programme enough to act on it with confidence? Will we put our financial futures in the hands of lines of code?

Companies with established, trusted brands will seek to leverage that brand strength to offer robo-advice.

Those without brand clout might take the option of leveraging those who do via partnerships, or go it alone in building their own brand.

These new FinTech entrants will be faced with the challenge of persuading people to trust in the service.

However, research tells us we trust people that we like; who we can relate to. And we will take advice from those with authority.

These key persuasions to drive behaviour must, of course, be underpinned with proofs: we will need to see that robo-advice has worked for others.

After all who wants to be a pioneer when our future standard of living hangs in the balance?

When people are uncertain, they look at others to gauge the reputation and quality of an organisation.

Credible testimonials and referrals from similar people in similar positions are helpful.

For those who remain sceptical of advice from their neighbour (or social media), a spokesperson that represents authority can be useful for getting a firm’s message across. Good evidence based communication will be key to the adoption of robo-advice.

These two issues highlight why the future for robo-advice will likely be one of transition. Robots led by humans; a stepping stone for a time when robots will eventually be the sole interface for a segment of the market.

Not only will the human-robo transition give the efficiencies needed to bring financial advice into the grasp of those with lower incomes and savings, but it will also be key in building trust for the new services and driving the communications around it.

Younger generations are arguably more open to trusting software to steer their lives.

However, as the baby boomer generations plan their way into retirement, a continued human dynamic to the communications should mean it’s a case of OK computer.

Keith Brookbank is director at Linstock Communications