A new white paper released today by financial services technology provider EValue shows how the technology behind robo-advice has the capacity to dramatically reduce the cost of delivering advice to consumers and also to pave the way for new direct ways of delivering advice and financial products. But, warned EValue Founder and Strategy Director Bruce Moss, the line between advice and guidance must not get blurred in the rush to capitalise on market opportunity.
Robo-advice is burgeoning in the UK, with a significant number of start-ups emerging and existing players adapting their business models to stake a claim to the space. As a result of regulatory pressures in the UK, robo-advice products will need to meet the same suitability standards as traditional advice and consequently the streamlining of the advice process will be limited. But, if institutions can take the step in adopting true robo-advice, then the behavioural finance and gamification techniques that can be applied in the advice process could boost engagement in a way that has never before been experienced by the financial services industry.
The findings from the whitepaper were launched at an industry roundtable in the City of London, hosted by Chris Williams, Head of Digital Advice at Nationwide, which has recently announced their trialling of robo-advice in-branch. In addition to the wealth of opportunities for customer engagement, discussion at the event also centred on the limitation of many current offerings, in that the technology is not yet able to offer an intuitive and fully bespoke service to customers.
It is this personalisation that is the key to consumer engagement. Cyborg or hybrid advice, in which all robo-generated recommendations are checked, will likely be a popular approach for cautious financial institutions. Another reason for the popularity of cyborg is that it triggers an additional check to identify and respond when a red flag is raised around a consumer’s completion of the questionnaire – for example if they rush through or complete only half – an issue unique to digital advice and avoided by face-to-face. It is likely that over time, for the mass market offering, the use of management information (MI) will enable the digital process to become smarter and evolve, with human involvement decreasing.
The roundtable delegates, including Lloyds Banking Group, PwC, Aegon, KPMG and Ernst & Young, discussed the lessons the UK robo market can learn from the US, where many robos wouldn’t meet the FCA’s suitability standard. There was a consensus on the need for robo solutions in the UK to have better risk analysis, test capacity for loss and take into account a more wholesale picture of a consumer’s financial portfolio. Delegates also discussed that, in time, robo propositions will become a core competency for financial institutions. Those successful in creating a holistic workplace propositions will be best placed to harness long-term consumer engagement.
Bruce Moss, Strategy Director at EValue, commented: “New research unveiled today shows there is no understanding of the difference between guidance and advice among consumers. The FCA states that if a consumer feels they’ve received advice then it can be deemed as such, so there is clearly a pressing need for the financial world to respond. This is particularly urgent today as the majority of UK robo solutions offer guidance rather than regulated advice. And yet, in a post-pension freedoms, auto-enrolment world, there has never been more need for consumers to have access to robust financial advice to assist them in making informed financial decisions.
“I believe that the efficient delivery of affordable and regulatory robust advice will be a defining core competency for major retail financial institutions in the near future.”
Chris Williams, Head of Digital Advice at Nationwide, commented: “We are really excited about the potential of robo in consumer advice. Ultimately this is likely to lower the cost of advice and it should enable us to improve customer engagement. Robo-advice is not about replacing advisers; instead we expect very soon to see a wholesale shift in the way consumers interact with the financial institutions they rely on. It is vital that institutions understand exactly how robo-advice fits in with their proposition. It’s not enough for them to simply white-label something and hope it works for consumers. By trialling robo we are putting our customer needs first and ensuring we match their demand for advice with cross-channel consistency – whether automated, hybrid or full face-to-face.”