The boss of Uber, Travis Kalanick, hit the headlines in early March after a video appeared of him swearing at one of his drivers after they had the temerity to complain about the firm’s fare structure and the consequences of his falling income.
The whole incident got me thinking about the effects of general price disinflation created by new technology, and whether financial services – particularly my own area of wealth management – are suffering from the same price disinflation due to technology.
The obvious corollary between Uber and financial services would be the rise of robo-advice. I take my hat off and congratulate anyone starting a new business and wish them every success. But will this have a devastating effect upon my own business?
Anecdotally, the evidence suggests not at present, but am I comparing apples with apples? As with many other discretionary fund managers (DFMs), we provide a ‘low-touch’ offering through a model portfolio service (MPS) for less affluent clients, or in other words those that were disintermediated post RDR. There is a gap in the market being filled by MPS. Robo‑advice is definitely a competitor here, but is it a credible disrupter to a mainstream DFM? At this point, no it is not. The most important reason is likely to be the degree of emotional capital involved with investing.
Investing life savings is different from a cab ride, swearing aside, which is an experience you would normally forget quickly.
Having faith in an online questionnaire may well be acceptable for the more modest investor with a small lump sum and modest savings plan. But for the more affluent client, while the investment return is no doubt of paramount importance, the softer offering of face-to-face contact can only be provided by human interaction. The relationship built up between client and DFM should last for years, with successful relationships being most important when clients are unhappy with short-term market outcomes. I do not believe a factsheet can provide this assurance.
There may well be a generational issue at work here, and one only resolved when the millennials are affluent enough to call upon the services of a DFM. While they are in ramp-up mode an MPS approach would seem sensible.
It will be interesting to see if they buck the current trend of our experience of using an MPS as the nursery slope before converting to full DFM. While I have noticed many of my friends and colleagues using Uber, so far we have yet to witness a move away from our DFM service to robo-advice.
I occasionally hear talk that our industry should be worried by the likes of Google, given its web dominance and the perceived threat it poses to existing business models.
While I agree that it will have some influence in the future, I believe this is still some way off. I would suggest the likes of GM and Ford should be more worried about Google and others with the rise of the electric and autonomous car.
I am, however, well aware of the weakness of predictions, with one of my much older colleagues lamenting that when he was younger his future promised flying cars. Mine may well be a Google self-driving car that tries to flog me investment services on my way to the dole office, although I fervently hope not.
James Calder is research director at City Asset Management
