Battle ground investing: team up with the humans

Charles Savage, CEO at Purple Group

Robo advice is the latest fintech-trend to hit South Africa and holds the potential to open financial advice to a mass market.

But there is a pertinent question to ask: is South Africa ready for machine-driven advice?

 Not news
The concept of robo advice is nothing new. The USA has been working on it since 2008. While the US has had a solid eight years of practice, the interesting thing to note is that it has seen the majority of its growth in the last year.

Robo advisers could be a catalyst to democratizing financial advice, making it more affordable for all South Africans to have access to financial advice. But in order to do so, it needs a solid model.

It is important that South Africa does not take a US based robo advice model and merely replicate it in South Africa. It is necessary to take into consideration the various demographics and diverse needs, wants and barriers facing South African consumers.

The human factor
While the tech element is a key component in the robo adviser model, the human factor should not be overlooked.

Uber is a prime example; the company embraced technology in a big way while harnessing the power and value of the human element. They empowered the driver, they did not replace him.

Robo advisers should fulfill the role of a co-pilot, assisting the consumer; while not replacing the financial adviser completely. I don’t think that the average South African investor is ready for driverless cars and certainly will not be for some time.

From what I have seen thus far, this seems to be the focus. And whilst the future of this looks promising, I think today’s opportunity lies in building Uber for advisers and that is certainly where our focus will be.

Guiding the uninformed
The above point is particularly pertinent when it comes to consumers who do not understand robo advice, or those who have never had financial advice to start with.

The idea of engaging with a machine for matters relating to their money could be incredibly daunting. It is thus vital to hold the consumer's hand through it all and ensure they feel comfortable and confident throughout.

Humans should very much still be a key part of the process. This is why a co-pilot model could be a useful idea. The consumer should still be actively involved but never out of sight of the co-pilot. This is a great way to empower the consumer, but never have them fear that they do not have support or guidance on their journey.

The user experience is vital in this instance.

The meat of the issue

When it comes to robo advice, it can be broken into two parts:

• Investment advice. The task of translating client inputs into investment outputs by means of algorithms; and in so doing, answering questions such as what investments to make, how often and to what value. At its core, the purpose of investment advice is to match an appropriate investment to investment goals, risk profile/tolerance and time horizon. While on the surface this seems a simple enough task, the process is fraught with pitfalls that in the outcome result in the advice striking a delicate but informed balance weighted by you inputs. The ultimate goal though is easy: to get people investing.
• Managing and modifying user behavior. This is walking the investment journey with consumers from their first investment through to reaching their investment goals. The task of the adviser is to engage with them along the way, educate and entertain them, keep them informed and up to date and ultimately encouraging and supporting them to make the right decision when the horizon is most clouded. This is the difficult stuff, the stuff I am afraid where most advisers fail to deliver real value, too busy and under qualified for the job. This is where technology will face its biggest challenges but also where I see the largest opportunities, our Uber adviser alongside us for the ride. We already outsource our fitness and health to online services, why not then our financial fitness too?

Make or break
Stepping too far to the right will be the make or break factor for robo advisers in the South African market. Managing and governing relationships with users is key. It is not enough to just modify behaviour. The adviser needs to be a shoulder to lean on and provide consumers with the confidence to continue long term.

In spite of the challenges, robo advisers hold great potential to open many doors for everyday consumers. Provided the advice is of a good quality, there are serious benefits associated to the model.

For starters, an automated system such as this means it can get to everyone; broadening the access point to financial advice. It lowers the cost associated with receiving financial advice and provides a model that can scale.

And how do robo- advisers fare when it comes to Treating Customers Fairly (TCF)? In principle, it should fare very well. In fact the six TCF outcomes are, in my view, more easily achieved if delivered through a technology driven robo experience.

I am excited to watch the development of robo advisers in South Africa, there are huge opportunities and impacts that will come from democratizing investing for all South Africans and I think these machines have a critical role to play. My only advice would be to partner people with technology, think Uber… not driverless cars.