With plans to create specialised robo-advisers who can deal with specific circumstances including retirement income or growth, this technology has the potential to prove disruptive both in the US and here in the UK.
Guidance versus advice
Distinguishing between guidance and advice can pose issues for anyone considering setting up an automated service. Essentially, any system that results in a specific course of action, as opposed to sign-posting different routes for the customer to take, has provided advice.
There are examples of both advised and non-advised robo-advice services in the current marketplace but although the difference between these offerings may seem logical enough, this can often become confusing to the customer.
For those companies taking the advice route, the responsibility will lie with them to make it clear to the customer when they are receiving advice and their model will also have to comply with regulation - arguably making this one of the most important decisions affecting the development of robo-advice.
The term ‘robo-advice’ itself would also benefit from further clarification. At the moment there are many variations of the ‘catch all’ term ranging from online services that provide entirely automated, algorithm-based financial planning advice, while others incorporate human interaction at a particular stage of their automated service.
A clearer definition of the parameters of robo-advice could not only help those in the industry to better understand whether automated services can fit with their existing business, crucially, it will also ensure customers are fully aware of the service they are interacting with and the products that best suit their needs.
The gap between what robo-advice can offer in comparison to full face-to-face advice sheds light on concerns raised from some corners that robo-advice could place greater pricing pressure on the advice market.
Robo-advice businesses have largely stuck to comparing themselves with direct-to-consumer propositions thus far, despite the fact for those automated services offering advice, the most direct comparison would arguably be with a full advice model.
But face-to-face financial advice, viewed in the UK as the ‘gold standard’, is still so far in advance of what robo-advice is currently capable of that it is unlikely any robo-advice firm would seek to compare costings with full advice at this moment in time.
Robo-advice is still within its infancy here in the UK and while the technology can pose challenges, there are some exciting examples of how advisers are adopting robo-advice alongside their existing offerings.
Whether it be through white labelling or using a software provider, advised or non-advised services, there is certainly no shortage of options available to advisers. The combination of an automated service with elements of human interaction also provides an opportunity for an adviser business to bridge the gap between full advice and robo.