Your IndustryAug 10 2016

Rise of the machines

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Rise of the machines

A recent report by the British Bankers’ Association revealed that high street bank branches saw a 32 per cent decline in visits between 2011 and 2015 as consumers turn to online alternatives.

Members of the public are comfortable managing their financial affairs over the web with the number of payments made using banking apps rising by 54 per cent in 2015 to £347m, while internet banking was used for 417m payments – a year-on-year rise of 2 per cent.

These figures bode well for innovative software engineers as well as Fintech start-ups aiming to create waves with their digital propositions.

Dennis Hall, chief executive of London-based Yellowtail Financial Planning, said: “Technology continues to evolve and so does the way we take in information. People are getting used to managing their finances online.

People like to conduct their business online but they want to know there are quality individuals behind the process Jeannie Boyle

“Once upon the time, people could walk to their local high street, pop into a financial advisory practice and get advice on life assurance, for example. This is no longer the case. Many advisers now promote their business online.”

Many people in the industry still get excited about the advent of online investment management sites based on algorithms that originally served the traditional advisory community.

This is because many see the potential of using these so-called ‘robo-advisers’ to service less-affluent individuals who have fallen into the advice gap as an unintended consequence of the RDR – and still make a profit.

While fully fledged robo-advice services are few and far between in the UK, there has been a proliferation in hybrid services that combine the automated investment process with the input of a living and breathing adviser.

Here, the intermediary would typically conduct the less-complex and time-consuming areas of financial planning, such as periodic financial reviews.

Under this model, which the industry has been quick to label ‘cyborg’ advice, the adviser is virtual – meaning correspondence between the intermediary and the client is conducted digitally.

Jeannie Boyle, technical director at EQ Investors, said: “People like to conduct their business online but they want to know there are quality individuals behind the process.”

In November last year the boutique wealth manager headed by John Spiers, founder of financial services group Bestinvest, launched a digital proposition to sit alongside its traditional advisory and bespoke discretionary investment management services.

Known as Simply EQ, it is designed for people who fall under the mass-affluent banner, as well as high-net-worth clients with simple investment needs who do not want to be hit by an inflated levy charged by traditional advisory practices.

It allows clients to invest through Isas, junior Isas, general investment accounts and a self-invested personal pension. Fees start from 98p per month, based on an investment of £1,000 in the EQ Low Cost portfolios, and this figure includes fund charges and VAT.

Users can invest online or speak to an adviser either over the phone or in person.

Ms Boyle said: “The most important thing is making sure clients fully understand what they are doing. You can tell, talking over the phone or face to face, when someone does not quite get something but it is more difficult to gauge through messages.

“You will never be able to automate the entire advice process but it will certainly help to reduce the cost.”

Key Points

• Many people in the industry are excited about the advent of online investment management sites.

• The market for tools that allow advisory firms to automate their services has been tipped to boom in the UK.

• Artificial intelligence, while not yet available to the mass market, is being developed.

Automation boom

While attention has focused on alternatives to the traditional advisory process, the market for tools that allow advisory firms to automate certain services has been tipped to boom in the UK.

Advicefront, which launched this year, claims to help advisers compete against online brokers and robo-advisers by automating ‘low-value’ tasks and reducing the time spent with admin, compliance and planning from nine hours to as little as 30 minutes per client.

It enables adviser firms to automate much of the initial engagement, the formal financial planning process, the financial plan and the suitability report production through a codified online system, according to Jason Butler, board adviser at the firm.

He said: “Most decent financial advisers are at full capacity and technology and automation have the potential to help them serve existing clients better and leverage their skilled staff to be able to advise more clients without lowering quality.

“As more clients interact digitally with advice firms, skilled financial advisers can focus on the more complicated and higher value advice work, which is difficult to automate or deliver digitally.”

The first stage is where digital solutions will be predominant and the second stage is where skilled financial advisers will be needed Jane Hodges

He added: “My view is everything that doesn’t need an emotional connection, empathy, subjectivity or a personal explanation should be automated. In addition, some advice situations that are highly complex or rare are likely to be too expensive to automate, at least for the foreseeable future.”

Hygiene factor

Meanwhile, some firms have become wedded to the online approach to financial advice. Clients of London-based Alexander House Financial Services can choose to have all their correspondence with their advisers via video conference software and over the phone.

They are also able to draw on the firm’s UK-based financial advisers who can meet face to face at the client’s convenience. However, the company incentivises clients to opt for its virtual advice by offering a discount on its advisory process.

Jane Hodges, the firm’s chief operating officer, said: “The world is changing. With better-informed customers and the use of the internet to fill knowledge gaps, the younger generations won’t be interested in face-to-face or long, boring processes, so the ability to get information quickly and transact quickly for basic needs will become a hygiene factor.

“I believe there are two main stages in a person’s life: the accumulation of wealth –savings – and protection of the ability to do so; and the decumulation of wealth, such as pensions and long-term care, and passing it to future generations – effective estate planning.

“I believe that the first stage is where digital solutions will be predominant and the second stage is where skilled financial advisers will be needed.”

For Mr Hall, advisory practices that turn their back on technology are likely to lack scalability, could struggle to compete against their more efficient rivals due to pricing pressures, and may fail to develop their business at a meaningful rate.

Ian McKenna, director of the Finance and Technology Research Centre, said: “Human involvement will continue to be an important element of financial advice but automated advice will be a solution for those who are not able to afford advice delivered face to face.”

He added: “Some advisers say that technological systems are not able to pick up on things like non-verbal cues, which play an important role in gauging a client’s attitude to certain things. However, technology is evolving.

“There is sophisticated artificial intelligence out there that can pick up on this. Granted, this technology will not be available to the mass market in the near future, but it is in development.”

Myron Jobson is a features writer at Financial Adviser