The Rise of Robo-Advice
Robo-advice is the new buzzword in the financial advice industry. It’s all everyone seems to be talking about - but is it a friend or a foe to financial advisors?
The term is used to describe the complex new algorithms aiming to issue financial advice based on the data entered into a computer program.
This technology remains new and the jury remains out on its usefulness (among industry experts and regulators at the very least).
Yet, the fact this this option is far cheaper than traditional advice from a qualified human clearly has appeal among less wealthy demographics.
Will Robots Be Stealing IFAs Jobs?
Many IFAs see this new generation of robo-advisers as a threat to their jobs, but it’s also been argued that this technology could actually act as a gateway to full-on financial advice.
There is so much opportunity to reach a whole new audience with robo-advice, not least the millennials. The low cost and the ‘everything-at-my-fingertips’ nature of this technology will surely appeal to this tech-savvy generation.
By offering a gateway into financial advice with this clever bit of Fintech, IFAs could potentially be grooming millennials and future generations of young adults to be their high-paying clients of the future.
Nutmeg, an online investment company based in London, was one of the first to rely primarily on robo-advice. One glance at the imagery and the wording used on the company’s advertising and it’s clear that it’s young adults that are being targeted. It’s difficult argue against there being a gap in the market for an investment company that can explain things in layman’s terms, without resorting to jargon that the average Joe saving for a house deposit doesn’t understand.
The Flaws of Robo-Advice
The major ‘flaw’ of robo-advice is that it’s not really offering ‘financial advice’, not as how the industry would describe it either. No technology has come close to offering the depth of advice that a human could yet, and it’s unlikely that will ever be the case.
Provided that this is made clear from the start, this needn’t be a hurdle to robo-advice going mainstream, nor a threat to financial advisers’ jobs.
It also needs to be made more clear how the information submitted to these robots is being used, and how much each answer affects the eventual outcome. Confusion surrounding entries could lead to the wrong product being recommended. There’s not the clarity that a human adviser could provide.
There’s also the problem that smaller independent advisers can’t afford to invest in this software. This is often the case with new technology - and ultimately a solution is discovered to make software more accessible. In this case, simpler software that an adviser could customize to meet their own needs may have to be invented before the technology becomes mainstream. Smaller IFAs are likely to be waiting eagerly for the day this happens.
However, if these hurdles can be jumped, there’s no reason why human and robot advisers can’t work together in perfect harmony.