Technology remains key to opening financial advice door

When the launches came thick and fast in the middle of the past decade it seemed the future of advice/guidance had arrived, with Nutmeg being joined by a raft of new market entrants, while several high street banks also prepared their own online propositions.

Algorithm-based investment and advice propositions were seen as a way of bridging the advice gap, and the regulator devoted resources to encouraging their development through programmes such as Project Innovate.

With client acquisition costs high and assets under management growth slow, some robo-advice providers were struggling, and by the end of the decade the launches had stopped coming, banks had developed cold feet and several providers disappeared from the market.

In the meantime, the advice gap has shown few signs of narrowing. Fewer than one in six people are taking paid-for financial advice, OpenMoney estimates, while the proportion of people seeking advice fell to one in 14 last year from one in 10 in 2020.

But while the original hopes around algorithm-based financial advice may have faded, technology remains the key to opening the financial advice door to more people. 

Mix and match 

While digitally delivered financial advice may not have taken off as expected, the past decade has taught us much about what works and what does not. We know now that while technology has a vital role to play, it is alongside traditional methods rather than as a replacement for them.

The market is moving increasingly towards a hybrid model that combines digital tools and processes with human interaction. The digital advice technologies needed in order to increase the accessibility and affordability of financial advice are now here, offering a way to deliver low-cost, quality service at the scale needed to begin bridging the gap. 

Robo-advice technology is just a small part of the universe of digital capabilities available to advisers, with automated processes allowing companies to cut costs and spend more time on active client work

Meanwhile, the market for accessing financial advice via digital means has opened up as a result of the Covid-19 pandemic, during which technology such as videoconferencing enabled millions to continue working, connecting and transacting. For instance, the usage of banking apps soared 72 per cent in Europe during the early part of the pandemic.

Robo-advice technology is just a small part of the universe of digital capabilities available to advisers, with automated processes allowing companies to cut costs and spend more time on active client work. 

While the algorithm-based services that emerged in the past decade focused on equipping consumers with the digital tools for investing, the emphasis now is increasingly on empowering consumers while also providing more traditional advice methods to support longer-term planning and decision-making. And being able to do that at scale is about companies also getting the best out of the technology that clients may not see but do benefit from. 

The hybrid advice model is enabled both by the back-office systems that drive company efficiencies, and the more client-facing functionality such as client portals, reporting, online fact finds and the range of investment tools that empower clients while adding value from an advice perspective.

Clients can choose to review and keep on top of their portfolios with the level of adviser interaction that suits them. Some might be happy to manage their finances with relatively little adviser interaction, while others will gain greater reassurance and engagement from more regular contact and input from their adviser.

The key is that a hybrid advice model provides that flexibility, a factor that consumers have come to expect from many of the services they use.

Intelliflo’s eAdviser Index measures customers’ business metrics against their use of Intelliflo office. The most recent version showed that “champions”, who maximise their use of technology, generated 44 per cent more revenue and 59 per cent more ongoing revenue per adviser and have 28 per cent more clients and 48 per cent more assets under advice than “explorers”, who do not yet fully use all the functionality available.

In other words, effective use of technology creates time and space for advisers to serve more clients. 

Holistic hopes

There is no straightforward solution to the problem of the advice gap. The industry still has reputational improvements to make, while public awareness of the availability and value of financial advice remains somewhat patchy, with a widely held perception of advice as being too costly.

The robo-advice approach on paper seems to provide a low-cost solution to meeting demand for advice and guidance around investment. But currently, growth for these providers is slow, patient capital is required to support robo-advice providers, and there just are not sufficient numbers of people who are happy to trust their finances to an algorithm that in most cases is provided by a brand of which they have never heard. 

At the same time, the industry lacks the capacity to broaden significantly its reach using traditional methods only. But it has an opportunity to use technology already available and to offer different levels of service to a wider range of potential customers, by making it more engaging, flexible, accessible and affordable. 

Johann Koch is chief sales officer at Intelliflo