Robo-advisor – the frenemy lurking

Written for website on October 12, 2015

I have been watching the rise of the robo-advisers for about 18 months or so. Only over the last 3 months have I seen that word come up in articles and conversations in Australia.

Yet, in places such as the UK and US, a number of start-up robo-advisors have made a dent in the industry and are starting to put some pressure. The incumbent response is generally that of either dismissal and denial. A few rare ones e.g. Charles Swabs, see this as a new market opportunity and have embraced the concept. They cleverly created their own robo-adviser and fenced it just enough so it doesn’t cannibalise their traditional market. This is where I personally see the opportunities lie.

I attended the advisors Innovation conference; this was my first and I wasn’t sure what to expect. From the agenda, however, I could tell that the advisors community is hungry for some tech in order to keep up with customers’ demands and expectations as well as lower their cost and modernise their operations.

The registration to the event was so popular that the organisers had to relocate it to a larger venue. During that day, robo-advisors were mentioned frequently by speakers as well as the audience.

However, I observed a general consensus from the audience: generally speaking, robo-advisers were not seen as a thread but more as a fad as most advisers would say they focus on high net worth individuals, therefore a different market. This was despite the repeated efforts from presenters to raise not only awareness but create a sense of urgency that the wolves had passed the gate and were now heading in fast.

While I appreciate that there is a multi-tiered market and the appeal of focusing on high net worth individuals, I also believe there are significant opportunities in the medium and low end of the market for those who have found a way to provide quality advice at low cost.

Are robo-advisors really a threat and enemy?

I take the pragmatic view when looking at robo-advisors and see them as a frenemy. The reality is that they are here, available, and their numbers will grow. I also believe that they can bring to the consumers access to investments capabilities at a low cost, convenient (web based, so anywhere any time), and with little engagement or effort and will appeal to a number of people, and not just the gen Y or millennials. Robo-advisors could be the answer for that medium and low end of the market.

In Australia specifically, it’s fair to say that consumers have lost faith in the financial advice area. Too many horror stories of people losing most of their savings have been heard. The consumers are finally realising that if the advice is free then it’s quite likely that the advice might be biased, yet, we in our naive minds, we still expect to get personalised, unbiased advice for free. How are advisers expected to make a living then if not from the commissions of the products they sell?

So here may lay the source of the problem some thought, hence the report recommending significant changes in advisors remunerations.

In the midst of those battles and debates, no wonder robo-advisors are becoming an attractive alternative not only as a business model (low cost sales) but also to the consumers: low or no fees, simple process, few options clearly laid out. All done online and without having to interact with another human-being.

I am also of the belief that a robo-advisor should be one of the option a financial advisor firm should offer; why? Because of the customer’s journey and lifecycle. I look at a robo-advisor as an incubator to a long term relationship between the client and the advisor. While someone might start online with a small investment at low or no cost; overtime that person’s need will change based on different life events at which point they will most likely need to reach out to someone for some face to face advice. Wouldn’t that be easier if they could start with an online chat and then book an appointment with the same firm who’s managed their investment for a while now?

Robo-advisors are essentially one form of sales channel suitable to some specific persona; with the use of suitable technology and analytics to detect the triggers, the client’s journey can take them from one engagement model to another seamlessly, whenever the time is right.

The challenge might be in selecting the suitable technology. Any “pre-fabricated” robo-advisor platform would most likely only provide similar outcomes and customer experience no matter what the brand is; which would make the ability to differentiate somewhat difficult.

To differentiate, the platform has to have significant breadth and depth of capabilities to allow the organisation to “program” its DNA and “secret sauce”; yet, it must be user-friendly enough to allow the business users to change and tune that “secret sauce” as the market demands evolve constantly. This is where I foresee the downfall of a number of robo-advisors platforms. It is quite likely that a lot of the “smarts” are deeply ingrained in the application and would require programmers to make changes. The other limitation, for those operating independently from main stream financial advisors, is that they only focus on a few persona and won’t have the means to cater for the needs of people when those change over their life cycle. This most likely will make the use of those robo advisors as a tactical decision by consumers.

There is no doubt that times are changing fast in the financial advisors sector and that disruptions are only just starting. The pro-active ones will embrace it early and leverage technology to their advantage, even if only for a short while; but the smarter ones will pick carefully the right technology partners to architect together a unique platform that will not only give them the agility and velocity needed to meet an increasingly fast and demanding consumer but also one that leverage their own industry expertise to guide their clients throughout their life journey. Those I believe will be the clear winners.


Top Technologies & Digital Strategies Impacting Finance

Written for on June 21, 2017

As technology continues to advance, not all members of the financial community are adopting at the same rate. After visiting the Adviser Innovation Summit and AIIA luncheon with David Whiteing from CBA, she details the key technologies & digital strategies that are both exciting the financial community & concerning them…

Over the last 7 years or so, I have noticed an exponential increase in the pivotal role of technology in the financial services sector. Yet, there are pockets amongst financial advisers (that could be described as “fundamentalists”) who are resisting this technological tsunami.

For example, 59% of advisers who have a website are not updating it regularly and only 5% have added a Live Chat option, even though this is a must, especially to engage with millennials.  Social Media was also reportedly underutilised and only 25% of advisers were currently using Virtual Meetings.

The reality of customer communication in Australia now is that advisers need to be omni channel, this means they need electronic follow ups, correspondence, automation, website traffic monitoring and alerts.

Robo Advice

There has been a lot of talking and writing about Robo Advice, maybe too much; as Matt Heine from Netwealth explained there is a lack of understanding as to what Robo really is and does.

Robo is about augmenting, NOT replacing.

Personally, I’ve always looked at it as another distribution channel and “relationship incubator. Robo advice, means having a way to engage with a client in a low friction and low cost manner. Combined with suitable technology to support highly personalised needs analysisguided selling, amongst others; Robo advice can provide the means to deepen and broaden the relationship with the client over time.

While only 3% of the advisers are using Robo now, as many as 26% are planning to add it to their business model. We are familiar with some aspects of Artificial Intelligence (AI) such as virtual assistants like Siri, Cortana and Alexa; but AI is also known to be very good at investing. Combining constraints, and self learning algorithms and predictors AI is now showing the ability to return 4 times better than human benchmarks.

Virtual Reality

The moonshot discussion of the Adviser Innovation Summit was about Virtual Reality (VR). Wealth management is notoriously linked to uninspiring spreadsheets that offer a poor medium in client engagement to discuss financial aspirations, plans and options. VR however can offer a much more immersive alternative of representing all that data, visualising it and understanding it.

It is predicted that by 2025, 85% of the advisers’ customers will be connected all the time, not just with mobile phones but also via devices such as wearables and other IoT around the home. Financial planning firms are now being compared and measured against the likes of Amazon, Uber and Tesla. People expect a frictionless and uninterrupted experience. For the 21stCentury adviser this is the realisation that it is about Man with machine rather than Man vs. Machine.

Customer Experience Centric Business

The undisputable role of technology was also reflected in David Whiteing, Commonwealth Bank’s CIO speech at the AIIA event. The engagement and customer experience has been increasing exponentially to the point that the bank is now an experience centric business. While the core function of financial services institutions are machine to machine transactions; what matters to the businesses are the

1 million conversations per week that occur with their customers.

Another customer driven aspect is the pressure to be at the low end of the cost curve, this means using more open sources and cloud based technology.  David Whiteing went as far as telling the audience that if our plans don’t scare us then they are not bold enough. Velocity is also critical, and improving resilience and reliability of apps with frequent updates is important. Ultimately however, it has to be something the customer wants and use. The biggest challenge can be to make customers aware of those new features.

Ethics & Data

What could be the biggest challenge ahead for financial services is not technological, it’s the ethical approach to data in particular that sourced by wearables and IoT.

As Matt Heine pointed out, underwriting is going to be influenced by genomics and insurance claims will refer to the claimant’s activities recorded on their devices. More and more devices and apps are being developed and consumers are adopting at fantastic rates however, the ethical conversation has not come to a head just yet. The topic is brought up however we are distracted by the next shiny pieces of technology and an ethical standard is yet to be put in stone.