Your IndustryMay 25 2016

When US sneezes, we catch a cold

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The big one for me to get my head round is the 0 per cent fund management fees being apparently offered by some groups. We have seen fees in the UK particularly on the passive side drop significantly, but a world in which there is no charge for this element of work really changes the landscape.

It may, of course, be that the institutions concerned are just trying to build up significant client bases and that they are looking to make money in other ways by offering various services which will make money for them. Perhaps it is seen as a temporary loss leader and forms part of a longer-term business model returning to profitability at a later stage, by which time it is hoped that significant brand loyalty may have been built up.

Interestingly, it is the named brands that are dominating in the US when they enter the robo-advice marketplace, and so we are back to brand loyalty and, of course, in turn, perceived trust. As we know, brand loyalty is very powerful in marketing, and therefore, without the same brand awareness and finances to invest in infrastructure and technology it is difficult to see how the advisory marketplace here in the UK could compete both effectively and profitably.

Robo-advice in the US apparently already accounts for 30 per cent of users, is likely to increase to 52 per cent and has 48 per cent that are not likely to adopt. It is also not just those with small amounts of investable assets who are engaging in advice this way, but some with very significant portfolios.

The difficulty in jumping to any firm conclusions should not be underestimated as we are comparing a different marketplace with differing definitions of financial advice and the role of advisers. However, it would be equally remiss of us to ignore these trends completely when formulating our own future business plans.

What is apparent, though, is that automation is expected whether an adviser is involved or not. Particularly with Generations X, Y and Millennials to whom computers, tablets and mobile technology are second nature. They do expect to be able to do much more themselves and to have instant access to information.

Time is a precious commodity to all of us, and it is not surprising that solutions requiring less engagement and time commitment with known trusted brands are very appealing. Just think how much time is required to go through the normal advised process in this country for even the simplest of transactions.

There are face-to-face meetings; fact-finds to complete; risk profile questionnaires; data protection and client agreements; research to be undertaken; illustrations; key features; suitability reports to be prepared and of course additional meetings to discuss findings, agree actions; completion of paperwork; processing and implementation and holding any further discussions/answering queries.

Clients who value the individual financial planning and advice process seem to accept these steps and some even rail against automation, but it is going to be essential, however we deliver our advice to embrace in more automation. This should in turn save time and costs to both ourselves as advisers and our clients.

What has happened in the UK is that product providers have reduced their costs significantly by passing on responsibility for the preparation and printing of illustrations, key features documents and brochures to the adviser. Advisers have, generally speaking, been slow and/or unwilling to pass some of the processes on to clients, but it makes sense to do so as automation grows in acceptability. After all, clients completing/updating their own fact-finds and money-laundering requirements online can surely only help to speed things up.

Robo-advice is already changing the landscape in the US, and some of the financial modelling tools previously the domain of the adviser are now being made available directly to the consumer.

Whatever the combination of robo-advice, financial tools and information that become available, one thing is certain, the age of the ‘empowered consumer’ is upon us.

Gavin Tisshaw is chairman of Executive Advisory Services