The booing finally stopped. I was mortified.
I had never spoken in front of 800 people before, let alone told 800 financial advisers at their annual conference, that their industry was about to change so radically that, like the dinosaurs before them, those who failed to adapt would go the way of the tar pit.
Not surprisingly, experienced, worldly-wise advisers didn’t like being told that the future of financial advice was online by a 31-year-old. But it was the year 2000, the height of the dot-com boom, and our company, the UK’s first regulated online advice business (today it would be called a ‘Robo adviser’), had just been bought by the largest online advice provider in the US. Eighteen months into our start-up, we were advising over a thousand people a day and we felt anything was possible.
The truth was we didn’t have the slightest inkling of how tough it would be to bring technology to the world of advice in the face of the way that consumers actually behave when faced with financial decisions and why the empathy, sensitivity and encouragement that good advisers bring is so vital when trying to get people to make financial decisions.
The fact is that financial planning is not like planning a holiday or buying a car; it requires slow, thoughtful, ‘System 2’ thinking, according to Daniel Kahneman in his book Thinking Fast and Slow. Many tech-led initiatives have gone nowhere because consumers struggle to envisage a future and the trade-offs needed today in order to delay gratification.
Add to this, low levels of financial education, low levels of trust in financial services generally and overwhelming product choice (e.g. 2,000+ investments) and engaging customers without a human adviser is tough. That’s why, according to the industry’s regulator the FCA, of the £208 billion invested by consumers last year 78% was through advisers.
In 2000, in certain respects, I was right, the future of advice was online, just not in the way I had expected. The vast majority of investment advice consumers now get from advisers is supported by online, model driven, financial technology (FinTech) which helps advisers more scientifically assess their risk profile and develop probability based investment strategies which give them a higher chance of meeting their goals at an acceptable risk level.
But what of the next decade? There are four developments now emerging, which will almost certainly change the game:
1. Simple, automated advice
Simple, personalised, automated advice delivered as part of a hybrid service where a regulated adviser is available to answer questions and provide reassurance will be a game changer when delivered well. Most of us have quite simple needs and questions most of the time. This is why the Government and Regulator are encouraging it.
2. Account aggregation
One of the big barriers to automation is access to the data needed to know enough about a customer to make recommendations personal and suitable. There are an increasing number of initiatives looking to solve this. The Government for example is promoting the Pensions Dashboard which will provide access to consumers on all their pensions.
3. Social networks
Through a community of ‘people like you’, the ability to share your financial situation and goals and benefit from the wisdom of crowds, friends and ‘highly rated’ individuals will breakdown the traditional information imbalance between professionals and customers forever.
4. Artificial intelligence
One of the side effects of the greater use of FinTech is the creation of big data sets on consumers’ financial situations, the choices they make and the outcomes they get. AI based models hold the promise of not only enhancing the efficacy of financial planning but also making it faster.
A frictionless future – supported by advisers
These developments are moving us closer to a world where financial planning becomes frictionless. Customers will get access to the advice they need based on accurate data and improved planning through powerful models.
Advice firms though will also benefit. They will be able to deliver their advice at lower cost and risk while focusing their more costly resources i.e. professional advisers, on customers where the complexity or sensitivity of their situation demands the experience, empathy and understanding that only humans can bring.
In ten years’ time accessing financial advice will be easier and different, but the tar pits will not be full of advisers.
Ben Goss is CEO of DT, the provider of Dynamic Planner, one of the most widely used risk FinTech profiling and financial planning services in the UK. His book Catching the FinTech Wave is out soon.
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