Robo-advice is a hotly debated topic, both with regards to the term itself and what it represents.
More recently the term has been applied to applications that seek to advice, or guide, consumers through the process of selecting packaged retail investments, savings and protection products.
The emergence of robo-advice has been met with some concern from advisers look at the whiteboard next to you as the inappropriate depersonalisation of the core value of personal advice. It has been speculated that robo-advice could ultimately lead to the disintermediation of face-to-face business models.
Others believe it offers an opportunity for advisers to better engage with clients and to make their businesses more efficient.So how has this progressed to date and how can advisers best take advantage of this?
The direct landscape
Due to the relative infancy of the direct landscape in South Africa when it comes to investing, the US is used as a barometer of the success of robo-advisers in attracting assets under management (AUM).
Investment News reported in January 2016 that the assets under management (AUM) for robo-advisers in the US grew by 209% year on year to $11.7bn from January 2015 to January 2016. This is while hybrid robo-models, typically deployed by large existing investment providers, grew their AUM over the same period by 53.76% to $136.9bn. Whilst these are material nominal AUM, it is important to note that this represents only 0,5% of assets under management in North America.
Global trends
The Boston Consulting Group, in their Wealth Manager Performance Benchmark Report of 2015, highlighted and ranked the top investment priorities in global financial services provider businesses by percentage of total investment allocation as follows:
• Improve sales force effectiveness (17%)
• Enhance digital interfaces (14%)
• Develop a digital adviser channel (10%)
• Develop new client segments (6%)
These priorities show clear investments into multichannel strategies underpinned by technology solutions to provide scalability and efficiency to enhance the overall customer experience whilst improving business efficiency and supporting human sales channels.
Digital channels as strategic assets
Financial institutions wishing to adapt their business models to take advantage of the new regulatory and customer environments will need to strategically employ technology.
Technology platforms need to incorporate an integrated suite of client front office applications, with a common infrastructure connected into multiple backend support systems.
This needs to be done while remaining logically consistent across these systems and supporting evolving and changing client value propositions and compliance requirements; whether it is to extend existing value propositions, or to develop new ones. It is important to maintain a single client view and advice congruence in an omni-channel advice environment.
The following diagram illustrates the high level architecture of an integrated technology platform:
Multi-advice multi-channel
Whilst initially many robo-advice services were developed by new market entrants as disruptors to the traditional advice businesses, the growing trend is alignment closer to traditional investment businesses as a complementary service solution and vice versa.
Market adoption indicates that robo-advice serves a dual purpose, firstly to introduce and develop new underserviced market segments in financial products and services; and secondly to enhance the service levels and expand the range of products and services to existing clients of traditional advice businesses.
Robo-advice should not be viewed as an adversary or alternative to traditional advice models, but rather an opportunity for advisers to grow and scale their business as part of a multi-advice, multi-channel proposition.
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