Long ReadFeb 23 2022

How the pandemic has proved robo-advice will not take over

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How the pandemic has proved robo-advice will not take over
Brett Jordan/Unsplash

Over the course of the pandemic years some industry commentators and experts believed that robo-advice offerings would supersede traditional human interactions.

However, it seems most businesses with robo-advice arms are accepting that a hybrid approach of blending the traditional with technology is more consumer friendly at present.

Liz Field, chief executive at trade body Pimfa, said recently that more digitalisation was expected in the advice sector, through hybrid business applications, not overarching robo-advice models.

In November last year technology chiefs at Schroders Personal Wealth and Saunderson House said robo-advice had not taken over and would not in the future. In December, technology adoption was reported as “alarmingly poor”.

In August last year, Lloyds Bank announced the acquisition of Embark Group for £390m with the aim of targeting the top-three spot in the robo-advice market.

Toby Larkman, chief commercial officer at Embark Platform, says: “The latest iteration of our Embark Investor Confidence Barometer found that more than half of advised investors would be comfortable in paying for robo-advice, either with an option to speak to someone or without.

“Perhaps unsurprisingly, it found that the youngest age brackets – 35 to 44 – were the most comfortable with robo-advice. For individuals without an adviser, comfort levels for robo-advice without the input of a person were significantly lower.”

He admits, however, that those who access financial advice would “be more comfortable” with advice solutions in general.

Mr Larkman adds: “These findings show that clients want to hear about their adviser’s digital developments, and how they can benefit from them. Over time we expect robo-advice will become a complement to existing advice solutions and models.

“We anticipate that take-up will be strong among individuals who are confident in their ability to manage their finances and are at the start of their financial planning journey.”

Mike Barrett, consulting director at The Lang Cat, says that what constitutes a robo-advice service is always up for debate, and echoed those comments about younger users that are more technology aware.

“In the direct-to-consumer sector most platforms have posted significant growth, both in assets under administration terms and also the use of their digital services."

He says the major players such as Hargreaves Lansdown and AJ Bell had reported a downward shift in their average customer age profile, indicating they are attracting younger, more digitally savvy investors.

Short-term fixes, long-term impact

Barrett says: “In the advised sector, while advisers still prefer face-to-face contact with clients, the demands of the pandemic have forced every firm to adopt digital onboarding and reporting processes, often via a client portal.

“While many of these processes were short-term fixes to allow some sense of business as usual during lockdown, we are seeing evidence that, for many advice firms, digital communications with their customers will become the norm, especially for post-sale servicing or client reviews.”

Barrett’s attitude towards the adoption of a hybrid way of working is aligned with Larkman's; an admission that advice will not go fully robo.

Barrett says: “If by robo-advice we mean combining human, regulated advice, with digital services – client portal, simple onboarding – then yes, this feels like the best of both worlds, and increasingly aligned with client expectations.

“The challenge for the sector will be to implement services that offer a good customer experience, but also retaining the human – and in some cases face-to-face – element that advised clients will typically value.”

He adds that for a lot of these services “the genie is out of the bottle”.

“Short-term fixes implemented to allow firms to operate during restrictions will evolve to become more permanent solutions. I don’t think there will be a return to a completely offline world.”

Ian Lowes, managing director at Lowes Financial Management, agrees that the robo-advice takeover is not prevalent, but many businesses are working on a hybrid model due to the investor preference of speaking with human beings.

Lowes says: “As far back as the Financial Conduct Authority’s Financial Advice Market Review in 2016, the regulator identified that robo-advice had a key role to play within the UK financial advice market; the thought being that automated processes could reduce the cost of advice and develop new ways to engage with consumers and maybe bridge the advice gap.

“In reality, the take-up was not what was anticipated as further research found that there was a lack of confidence from investors who preferred to speak to a human being, particularly during the initial stages of the advice process.

“Roll forward to the global pandemic of 2020 and the wealth tech sector has seen something of a revival as the restrictions forced even the most traditional of clients to adopt a more digital approach.”

He adds that there is “without doubt a place for robo-advice", but says the “evolution is more likely to be a hybrid approach using digital channels, automated processes and the good old human financial adviser”.

Kat Mann, savings and investment specialist at Nutmeg, agrees that the solution is adoption of hybrid models as opposed to a fully automated one.

“We see the future as being hybrid – people and technology.

“For financial advice and planning, there’s often been a resistance to digital services in this area, with traditional face-to-face meetings with clients held up as the gold standard.

“The world has moved on and being able to provide wealth management and advice on clients’ terms is our focus. The pandemic has shifted the perception of what can be achieved via video calls, digital interactions and how this can be used to deliver a personal service.”  

Simon Gray, managing director at Hub Financial Solutions, says robo-advice and in-person advice complement one another.

“We believe that automated services combined with the ability for clients to engage with human support when they feel they need it – because they have a tricky question, want something explained or just to get some reassurance – are the future of financial planning."

Stephanie Pickering, chartered financial planner at Verity Wealth Management, says she is unsure what advisers with robo-advice will do moving forward, noting that some will continue while others may not possibly due to costs.

“We are back to face-to-face meetings and have been for some time. As advisers, we love the proper interaction, and this is the part of the job we love and enjoy, plus most clients prefer it too. 

“There are those that remain happy with and prefer a zoom or telephone meeting, so we will continue with these. It’s all about keeping the clients happy and using the tools of the job to deal with everyone appropriately.”

Ruth Gillbe is a freelance journalist