Can brokers use robo-advice to their advantage?
It seems every year there's a new development that threatens to make traditional financial advisers and insurance brokers obsolete. In the past few years it was the Retail Distribution Review (RDR) and the Protection of Personal Information Act (PoPI). So far, none have disrupted what some refer to as the 'dinosaur' of the traditional insurance industry. But a new foe has emerged in the form of robo-advice: automated algorithms and digital techniques to give consumers the advice and products they need sans advisor.
Earlier this year, Lawrence Wintermeyer, Innovate Finance (the UK's fintech industry body) CEO, told Business Insider that robo-advice covers anything from execution right up to where a client has to sign an agreement with a firm.
Why Do Consumers Want Robo-Advice?
Big data. Advanced analytics capabilities. Instant access. Instant results. And best of all? Little to nothing in fees. This is the competition, and it's not that new. Sanlam is one of the major players in the financial services industry in South Africa who've cottoned on to this new financial technology (fintech) buzzword in a big way with their product, Sanlam Smart Invest. Investors can go onto the platform, pick a savings goal and seamlessly plot their investment trajectory and pick a fund that suits their needs. In under a minute. Which brings us to why consumers are opting for robo-advice.
- It's Nothing Personal
With a computer algorithm, you get an unbiased response to data you plug in. Granted, every company employing this service is ultimately a business, but the consumer doesn't have to deal with a pushy salesperson behind on their monthly target. It's advice on a product. Value provided, no strings attached.
- Guilt-Free Comparison
Product comparison sites, like CompareGuru, have gained considerable traction with consumers who want to be educated, not coerced. When it comes to purchases like car insurance, consumers want to be able to say they're getting the best deal for their hard-earned money. With robo-advisors, consumers don't need to worry about feeling as if they've wasted an advisor's time should they decide against the solution presented. They can just pop on over to the next robo-advice platform and see what that pops out.
- Less Time and Money
This is a big drawcard. What robo-advice platforms have done, is streamline the entire advice model for the client's convenience. There are no disruptive phone calls that could've best been laid out in a non-invasive email. Results are at the click of a button, or a tap of a screen. Consumers can discover their needs at a time that suits them. From the comfort of their beds. And since their's no human interaction, there are no adviser fees to be paid.
What's An Advisor To Do?
Wintermeyer reports that in the US, robo-advice has probably become the third biggest drawcard for institutional and venture capital investment in the US. Wealth management firms, where the automated model is more prevalent, have each approached robo-advice services differently. Some launch their own services, others partner with providers, and there are those who buy formerly independent startups.
Currently, robo-advice capabilities are quite basic. They use simple surveys to profile clients and assess their needs, then they propose, adjust, and implement assets.
American financial planning expert, Bill Bachrach, has suggested that "robo-advice tools will decimate Funds Under Management-focused advisers, while ‘values-based’ practitioners will survive the automation trend”.
Basically, if you can't beat them, better them. What the automation trend offers is an opportunity to enhance the client-advisor experience. The digital capabilities of robo-advice, complementing the personal connection of a values-based advisor invested in the financial wellbeing of his clients, for a seamless experience.
