Financial planning’s Uber moment: ten reasons robo advice will change your world

Simon Hoyle


November 16, 2015

The advent of robo advice is a seismic event in financial services and represents the most significant development in the delivery of financial advice in the past three decades, according to FinaMetrica director Paul Resnik.

But far from being harbingers of doom, Resnik says he believes the impact of robos on existing financial planning participants will be overwhelmingly positive.

That is not to say the impact of robo advice won’t also be challenging for financial planners; but in a report to be published in Australia tomorrow, The robo revolution: robo advice market commentary and analysis, Resnik says robo advisers will not, in most cases, take the place of human advisers.

Resnik says Robo advice will be to financial planning what Uber has been to the taxi industry. Uber hasn’t stopped people using third-party transportation, but it has disrupted the incumbent provider of that service and is forcing adaptation in that space.

In the report, FinaMetrica sets out what it says will be the 10 major effects robo advice will have on both new entrants and established players in the financial planning space, and why the rise of robo advice can be positive for those who adapt effectively.

Resnik says FinaMetrica is uniquely placed to comment on the robo-advice phenomenon and to assess its impact, because many would-be services need at their core a risk-profiling capability.

“Many of them come knocking on my door, as my company … supplies a critical section of the ‘brain’ that a robo adviser needs to operate,” Resnik says in the report.

Operating in a vacuum

But Resnik says that “repeatedly we observed that people working on, or with, robo advisers were operating in a vacuum”.

“They often struggled to find information about how the robo space around them was evolving,” he says.

“The world was ending at their whiteboards and they were calling out for someone to provide a broader perspective.”

Resnik says the new analysis goes “far beyond the ‘Terminator’ question, which asks, ‘Will this be the rise of the machines and the end of the humans?’ (in this case the human adviser) because, strategically, this is a secondary issue”.

“Undoubtedly, some human roles will be replaced by automation, but that is happening in all industries all the time,” he says.

In comments provided to Professional Planner, Resnik says robo advisers will still struggle with gaining market share given the high costs of customer acquisition.

“Robo advisers are likely to be as great a disruptor to the delivery of financial advice as Uber is to public transport. It could be an expensive mistake to make an uninformed decision to operate a robo adviser or to choose to disregard or dismiss them,” he says.

“While robo advisers are the flavour of the month, they still have a tiny market share of less than 1 per cent of assets under management. Yet they regularly make headlines in the financial press, and many different businesses are spending up big to quickly get into the game.”

10 reasons robo-advice will change your world


1. Robos are big

You’re going to hear a lot about them and they will impact on your life. We believe that the impact will be overwhelmingly positive! Don’t believe the gloom that says robos will replace human advisers. They won’t.

2. Robos will be everywhere

Everyone in the financial services supply chain will have a robo, either as a direct-to-consumer offering or as a tool for financial advisers to use.

3. Your client base may be under threat

Robos will be everywhere and your clients will be courted by them. Your new competitor might be a club or a community-based organisation or affiliate – any organisation with a large membership could soon be in the market for a white-label robo.

4. There will be many different robos for different purposes

You will have a choice of robos, which will not all be the same. If you plan on working with any one you will need to assess it carefully to ensure it will be fit for your purpose.

5. Early movers don’t necessarily win

Better to make a considered decision and use proven technology and processes like FinaMetrica’s risk-profiling system.

6. Robos will have to adopt suitability standards

To flourish, robos will have to meet the same suitability standards as human advisers. It is unimaginable that an advice business would want the same client getting a different recommendation depending on whether they used robo or human advice. A business built on a multi-factor assessment of risk tolerance, risk capacity and risk needed will, of course, expect those same standards in a robo.

7. Dealing with non-assigned clients and other relationships

Robos are quick and accurate at process work, like collecting data. And they make things fast – an investment recommendation can be on the table moments after the data is collected. It will, of course, be expected that robos must integrate with your business practices.

8. Low-cost, multi-asset portfolios are here

Robos deal in very low-cost investment structures and that is going to challenge current thinking, current practice and profitability. Like ripples in a pond, over time the effect becomes unpredictable even when it started out very structured.

9. You will have to prove your value proposition

Advisers are professionals who add value to their clients’ financial lives. Be ready to prove that, because you will have to be able to supply that proof to charge higher fees than a robo.

10. Fees may come under pressure

Just as low-cost airlines lowered airfare costs, robos are likely to bring down the base-cost of advice. But, just as with the airlines, some people will not want to fly with the cheapest; some will be happy to pay full economy and some will want the silver service that comes with first class. The more holistic and detailed traditional advisers are, the more they will win. Robos are not currently good at complex matters such tax or estate planning or insurance. Possibly we will see traditional advice operating to create the financial plan, with robos dealing with ongoing transactional needs.

Source: The robo revolution: robo-advice market commentary and analysis, FinaMetrica




TOPICS:  Finametricarisk profilingrobo-adviceUber