In a bid to provide some continuity in my first issue as editor, I thought I’d pick up the baton on some of the thoughts offered by my predecessor, Jon Cudby, in his final issue back in July. And while it’s not quite a case of my being a Theresa May to his David Cameron – our differences aren’t that distinct – I do want to offer a slightly different take on one topic.
The subject in question is one that’s taken up more than a few column inches over the past two or three years: robo-advice. Let's add a little more to that pile.
If I may boil his argument down to its most basic form, Jon asserted that, despite all the talk and all the hype over technological improvements, human advice and human relationships will always have a crucial role to play in financial planning.
You’ll find little argument from me there. I wonder, though, if the attitudes towards robo-advice have become a little more finely balanced of late.
Look at the experience of Nutmeg, destined to forever be held up as a microcosm of the sector. Then-chief executive Nick Hungerford told me back in 2014 that it would take years for the company to become profitable. Another annual loss for the company appears to have raised eyebrows nonetheless. Perhaps the question is whether it will ever move into the black. On this I defer judgement, but robo-advice expectations are being pared back elsewhere at the moment, too.
Recent surveys have suggested that even millennials, the younger age group seen as something akin to the holy grail by marketers of all stripes, prefer the personal touch when it comes to finance. That would tally with the suggestion that this demographic is less financially literate than its predecessors (whether you believe this assertion is another story).
So though we’re still seeing all manner of advisers and providers, large and small, set out on a path towards a robo-advisory future, it’s clear there are a few initial roadblocks.
If that’s the case, advisers might wonder what the fuss is about. The threat or opportunity has been overestimated; you don’t need to worry too much after all. But let’s take a step back for a moment and consider how technological improvements tend to emerge.
You may have heard of Moore’s Law, the prediction that computing power doubles every two years. More relevant for the advice industry is Engelbart’s Law – and no, it’s not any thing to do with Mr Humperdinck.
Mr Engelbart, best known as the inventor of the computer mouse, preceded Moore’s Law by making a series of similar predictions back in the 1960s, most of which still have relevance today.
Chief among them was the suggestion that although businesses try to stay ahead of the curve when it comes to tech advances, the vast majority severely underestimate the magnitude of change that is coming.
Can this prediction hold for robo-advice, even if initial take-up proves less than expected? I think it can. The reason – sorry to bang this drum again – is based on another adage: over shorter time periods, the pace of technological change tends to be slower than we first imagine. But over a decade it’s liable to vastly exceed expectations.
There’s no saying for sure if this will hold true for robo-advice. But the point is, whatever the value of face-to-face services, developments that look unlikely now may well seem commonplace in 10 years’ time.
Regardless, I’d imagine hybrid models will probably be the industry’s preferred method of operation. Nutmeg itself has already acknowledged the need for human interactions for certain advisory services.
In truth, the future may already be here to some extent. Just look at how many planners already lean heavily on automated programmes in order to work out some of the options for clients. While that’s to be welcomed – you could say it raises the bar for minimum service levels – it also risks creating a world in which advisers rely too heavily on their systems rather than their own knowledge. It’s a problem which may have to be confronted for robo-advice sooner than we may imagine.
dan.jones@ft.com
