OpinionJan 15 2020

The rise of the robots

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Ever since I first heard about robo-advice it has been a disappointment to me.

Not because I am against the principle of it – although I reckon it does present some problems – but because in my imagination it was a much more futuristic and scary notion.

I had visions of seven-foot robots telling people which funds to shove their money in. I may have watched too much science fiction but I foresaw a towering metal beast standing over quivering consumers, impatiently waiting for them to sign a client service agreement.

“You have 20 seconds to comply,” the robot would roar, “and then you have a 14-day cooling-off period to change your mind”.

But the future is seldom as depicted in fiction, as those who noticed that the original Blade Runner was set in November 2019 can attest to. That month passed with no sign of a dystopian robot-filled world or flying cars drifting around above our heads.

But robo-advice is here and is slowly changing the world of finance, despite fears from regulators, consumers and traditional advisers. 

And the debate is set to rumble on throughout 2020 as more companies set up their own digital advisers.

But despite the hopes of some that it could boost their business, we should remind ourselves that robo-advice is not a replacement for expert financial help from a person. 

Frankly, it is just a bit of computer software that used algorithms to work out what may be possible investment or savings solutions for clients. That, of course, could be hugely helpful in explaining to people some of the opportunities open to them.

But I can only ever see robo-advisers, or digital assistants, as a small part of the financial advice process. They are akin to the slightly annoying chatbots that pop up on almost every online commercial site you visit these days. They can be a boon if you just have a simple query but they are hopeless if your question is a little more complicated.

All digital assistants have limitations, which is why no-one should rely on them to give them detailed financial advice. Sure, the robo-advisers can help guide people towards, say, a balanced portfolio. In fact there are several advantages they offer, not just convenience, which means everyone will be using digital assistants in the future.

It will be a boon, for instance, that they can be consulted 24 hours a day, which will give busy people more flexibility about choosing when they sit down to consider their financial affairs. 

And if there are simple matters to be sorted that can be done with the help of a digital assistant, then that should ease the administrative burden on traditional financial advisers.

There are lots of reasons to welcome the growing spread of robo-advice, from both a consumer point of view and a financial adviser point of view. 

But there are dangers.

If we consider that the digital assistants are little more than sophisticated calculators, then we have to consider the scary truth that a fat-fingered consumer could inadvertently input the wrong data and consequently be led to a wrong solution. That could be a costly mistake that people may not realise they have made until years later, when their expected financial futures turn out to be less attractive than they anticipated.

And if they have relied on the guidance of a digital assistant they really will not have any recourse, will they? You bet they will. They will come after the company that set up the robo-advice. For that reason, its limitations must be made clear.

One thing that has become apparent in the past couple of years is that there is a degree of consumer resistance to robo-advisers.

Last May, for instance, Investec shut down its Click and Invest robo-advice business because appetite for the service had remained low and the market itself was “growing at a much slower rate than expected”. 

The truth, as I see it, is that robo-advice will become a crucial part of the financial advice offering, but only over time, and only as an adjunct to traditional human interaction with clients.

By the end of this decade we will laugh at the naysayers who have been busy predicting the death of robo-advice. I get where they are coming from, because as far as I can tell, robo-advice has been seen in some quarters as a way to cut costs or simply to encourage people to invest more money.

Neither is true, but the technology will prove a boon to those companies that use it properly. That means harnessing it to add to the service they offer rather than reduce it.

I reckon it will turn out to be a crucial extra string to a financial adviser’s bow, and will be used to back up advice given, rather than replacing it.

You have 20 seconds to agree…

Simon Read is a freelance journalist