Fintech under the microscope at the Annual Financial Planning Institute Professionals Convention

Threat or opportunity? Industry experts examine the possibilities of fintech and robo-advisors for the financial advisory industry.

Fintech took centre stage at the 29th Financial Planning Institute Professionals Convention, at the Century City Convention Centre, with a round of TED-style talks. Ronald King, CFP® professional from PSG, Jacques Rossouw from Astute, and Maarten Boddeus from Object Way discussed the threats and opportunities that fintech and robo-advisors present for the financial planning and advisory industries.

Algorithms in finance

Rossouw was the first to speak, focusing on how algorithms in the banking and financial sector are becoming more entrenched. “In its true math form, algorithms exist to allow computers to make informed decisions – it’s data that you input that gives the output.”

Interesting facts raised were that China has invested R10 billion in fintech and algorithms, and the University of Cape Town’s launching of the first speciality fintech degree in Africa. “The reality is algorithms are here to stay and need to play a major part in the support structure of your advice that you impart to your clients,” explained Rossouw. “But where technology can only offer emojis, a financial planner can engage with compassion and a certain level of emotion. Emotion is what builds trust.”

Hybrid financial advice

Boddeus focused on the marriage of humans and technology with a talk entitled ‘From Robo to Hybrid Advice’. He underscored the functions a robo-advisor could assist with in a virtual client engagement and interaction scenario, including data-based, risk-profiling of clients, goal-setting based on clients’ needs, and digital onboarding and monitoring, adding that the latter is a skill set computers are much better at than humans.

Because tech is more accurate with certain tasks, the ideal would be to move from traditional financial planning and advice to a more collaborative approach. Boddeus advocated an integrated, hybrid, digital-client experience where a human financial planner works with robo-advice to give their client the ultimate experience.

Myths about robo-advice

1. Robo advice is independent
The reality is that many robo-advisors are now owned by product suppliers and the algorithms they use are based on the subjectivity of their creators.

2. Robo-advisors are always correct
They are only as good as their algorithms and and their algorithms are only as good as their programmers. These robo-advisors are developed by investment managers who have limited knowledge about financial planning.

3. Robo-advisors cannot ‘care’
They are able to offer tailor-made advice based on data sourced, and with Google tracking all online activity, they can build solutions based on this data – which in turn, makes it feel as though they care. Google, Facebook and Apple are your biggest competitors – the minute they latch on to an industry, that industry is in trouble. “How much of your client data are you using to benefit and engage your client?” asked King. The kind of advisors who will lose clients to robo-advisors are those who don’t interact with their clients regularly.

4. High-net-worth people don’t use robo-advisors
More than 50% of US online investment company Betterment’s $3.3 billion in assets under management comes from people with over $100 000 invested. More than a third of US automated investment service firm Wealthfront’s $3 billion is in accounts with a $100 000 minimum. More than half of the money currently under management in the world belongs to women. “But we ignore them and they move to robo-advisors,” says King. “And don’t think the older generation are not going to use them – the use of robo-advisors is cross-generational.”

5. Robo advice is a passing fad
It’s not! A pre-Internet world will never return. Connectivity and artificial intelligence will only get stronger and smarter. What we need to start gearing up for is a blend of traditional methods of financial planning and technology.

King finished his talk by saying: “Yes, there may come a time that robo-advisors disappear, but the digitalisation of financial planning will not. If we don’t blend traditional and tech, we [financial planners and advisors] are not going to have a future. Hybrid is the way to remain valid and sustainable.”