How tech can help close the advice gap

Robo advice needs little introduction; it has formed the crux of many debates over the past few years.

Advocates of robo advice say it can offer a lower-cost, compliant way of dealing with less wealthy clients, or those clients whose needs are less demanding than, for example, someone wanting to do a defined benefit transfer.

As David Geale, director of policy at the FCA, explains, automated advice will lower the cost for both advice provider and the end consumer. Mr Geale says: "We believe technology and innovation can play a big role in reducing the cost of advice, ensuring consistently high standards of advice and increasing the accessibility of advice for consumers.

"Automated advice models seek to re-create the face-to-face advice process, for example through the use of algorithms."

For example, providers such as Wealth Wizards have already created algorithm-based platforms that enable the automatic generation of personal advice. 

The team behind this captured the imagination of pension provider LV=, which bought a majority stake in Wealth Wizards in August 2015, with a view to offering a form of automated pension advice. 

The technology also enabled LV’s in-house regulated telephone retirement service Cora to use Wealth Wizards’ advice platform to generate personal advice for pension savers planning for retirement.

We need to defend professional advice and help firms by using any new emerging technology. Quite simply we cannot allow our profession to be left behind. John Cowan

The same month, August 2015, was when the government and regulators launched the Financial Advice Market Review, which examined ways to plug the advice gap.

In the Review, which was published in March 2016, robo-advice was hailed as one of several areas where development of technology-based services could go some way towards closing up the so-called advice gap.

Page 39 of the Financial Advice Market Review final report stated: “Technology, including fully automated advice models, has a key role to play in reducing the cost of advice and developing ways to engage consumers.

“Even where consumers continue to seek interaction with an adviser, most respondents agreed technology can complement advisers by reducing the time involved in, and therefore the costs of, the advice process.”

Other applications

Fintech isn't just there to boost ways to advise clients and reduce the advice gap; it is also there to help make complying with various regulatory regimes easier for firms.

For example, earlier this month (March 2017), robo-wealth advisory firm Wealthify partnered with LexisNexis Risk Solutions to strengthen its anti-money laundering (AML) and identity compliance checks.

The alliance means Wealthify was able to reduce its compliance team down from five people to one member of staff (which is great if you are an employer, not so great for trade unions), and the speed of these new LexisNexis Risk Solutions' processes means that Wealthify's customers can sign up and start investing within 10 minutes, fully compliant with AML.

This is a significant potential time and cost-saving; according to consultancy Accenture, AML compliance costs - which are set to rise further after the European Union's fourth AML directive comes into force this year - have already increased by 50 per cent in the past three years. 

Michelle Pearce, co-founder and chief executive of Wealthify, says: "One of our key differentiators is speed. However, as a regulated online-only service, complying with AML regulations is a priority.

"This new technology helps us succeed on both fronts by speeding up the compulsory background checks, while helping us meet our compliance obligations."

Industry-wide

The need to automate advice is not just confined to the investment or pensions space, however. Like the FCA's Project Innovate, which aims to cover fintech developments across banking, insurance, pensions and investments, automated advice models are encroaching on the protection and mortgage industry.

John Cowan, executive chairman of the Sesame Bankhall Group, says he is "urging" firms to "think deeply about their business models, due to the emerging threat created by the new financial technology and robo-advice players."

He comments: "It is still early days for these developing direct-to-consumer propositions and most of them will fall by the wayside, but there is no doubt that these new entrants are going to try and automate much of what mortgage advisers do today.

"These new firms see an industry which is ripe for challenge and where the customer experience can be improved.

"That is why we need to defend professional advice and help firms by using any new emerging technology and have it embedded in their businesses, so the experience the customer receives when they come and meet with their adviser is as streamlined and professional as possible. Quite simply we cannot allow our profession to be left behind."

He believes to do this, advisers, networks, support services providers and lenders need to work together to develop a state-of-the-art, efficient advice service, which enables the "professional mortgage adviser to get on with the job at which they excel."

Other measures

But while robo-advice or hybrid advice or bionic advice - all variations on the same theme - is one of the ways highlighted by the Financial Advice Market Review as a means of closing the gap between the number of people needing advice and the number of advisers available (and willing) to serve them, it is not the only way.

It is just one of the things being considered as part of the wave of fintech innovation among advice firms and providers alike.

As the FCA's Mr Geale explains, technological innovation will create new ways for consumers to engage with the financial services industry, and the industry will find new ways to provide compliant products and services. 

He comments: "The key challenge for firms operating in this space is to ensure they understand the regulatory implications of their model, rather than the development of technological processes."

EY's report, Managing Risk In Automated Advice, agrees the FCA's case-based approach under Project Innovate aims to benefit the consumer, whatever the final technological development might be. It states: "The FCA is looking for companies to work consistently to ensure the customer gets a good outcome over time."

Whether or not a firm goes full-robo, there are important developments and engines that will make the entire advice journey much easier for clients, according to the EY report. It outlines several key components that will be required for a firm to make a successful technological transition.

In a nutshell, these are: 

• Automating the customer journey.
• Creating a suitable investment engine.
• Creating a holistic advice engine.
• Implementing a compliance engine to minimise the risk of repeatable errors.
• Creating a satisfaction analytics engine towards managing for good long-term consumer outcomes.
• Creating a role for a human adviser for the most complex cases.

Moreover, EY says simply implementing automated advice is not the whole answer: "We believe a hybrid approach of humans working alongside fully automated customer journeys will be a key element of successful solutions for the forseeable future."

There will always be circumstances or considerations that cannot be captured by an automated model, which is why some firms, such as Learnvest in the US, offer a 24/7 email contact offering, while Australia's Movo offers tiered packages tied to different levels of human involvement.

Better processes

And while entrepreneurial start-ups in the fintech space are looking at what might be the next generation of technological innovation, financial advisers are concerned with getting good technology now to help make the whole advice process easier, cleaner and more efficient.

Martin Bamford, chartered financial planner for Surrey-based Informed Choice, comments: "We need systems which help to do the ‘heavy lifting’ faced by advisers around analysis and the construction of advice, so that advisers can continue to manage client relationships just in a more efficient manner, would be very welcome.

"This would allow advisers to look after a greater number of clients or work with lower net worth clients, without the cost of their services being an unnecessary barrier to advice."

Echoing this view is Charles Owen, founder of online alternative investment platform CoInvestor, who says: "Technology can support financial planners better by providing wider access to their clients' portfolios.

"Upcoming technology solutions can provide advisers with a 360-degree perspective on their clients' portfolios, enabling them to provide advice that is worth paying for."

Chris Hannant, director-general of the Association of Professional Advisers, agrees: "Any simple back office task that can be automated to make life easier for clients and advisers is worthwhile."

simoney.kyriakou@ft.com