Is expert advice a thing of the past?
In an age where we’re becoming more used to interacting with devices than with people, it’s no surprise that the traditional model of face-to-face financial advice is under duress.
For one, trust of financial advisors is at an all time low, with only 23% of surveyed individuals believing their advisor has ‘exceptional’ knowledge of the thing they are being advised about.
There is also demand to be cheaper, through the use of technology, and so pressure is on both established players and newcomers to provide a low-cost solution to an otherwise costly activity.
Furthermore, with the rise of digital-only banks and other disruptive financial technologies, there is demand from the public to make advice more accessible and tactile, removing or reducing the need to pick up the phone, or meet someone face-to-face.
That’s not to say they don’t want the right advice, they just want it delivered easier and in a more manageable way.
It’s worth defining what a robo-advisor is at this stage, as it’s a term which has broader implications than the title suggests.
Robo-advisors will not replace human beings, let’s just put that out there straight away.
Robo-advisors – like Betterment and Wealthfront in the US, Nutmeg in the UK, and emerging players like Swanest in Europe – use technology to help manage investments in exchange traded funds (ETFs). By using algorithms that predict performance and react to certain circumstances, they provide an interactive platform for users to build portfolios, with adjustable levels of risk, with little or no need for human interaction.
The bonus of these platforms is that you can invest much lower amounts than in the traditional wealth management spaces, and so they bring accessibility to a broader audience, in a way that is engaging and easy to understand. You can assess, reassess and then update your risk appetite, portfolio mix and moral investing preferences – all at the touch of a few buttons, 24 hours a day.
It’s understandable, therefore, that wealth managers feel some parts of their job are under threat.
Threatening the experts
The main perceived threat to the wealth management sector, in their eyes, is that this approach to investment advice is digital, automated and, therefore, capable of taking over their long-term, stable employment opportunities.
The advice they offer has traditionally been reserved for the wealthy, as the costs have been pretty prohibitive for the average Joe. The modern-day theme of financial inclusion means the market is trying to cater for those who might have previously been excluded, and so is opening the door to a new demographic who will find this kind of tool of great value.
As Ian McKenna states in his recent article “Nothing to fear from robo-advice”, the UK has one of the most respected financial regulation models in the world – it’s one other countries are looking to emulate, but it’s not one that is cheap to abide by. This is, usually, why advice doesn’t come cheaply.
However, not everyone will have complex portfolios and, therefore, the advice they need will be relatively straightforward. For these people, the level of ‘advice’ that a robo-advisor can give will be more than enough. With time, as their investment requirements grow, their robo-advisor has the opportunity to refer them onto a real person who can provide more complex advice.
So, in the eyes of many, robo-advisors are simply providing a way to include those who may otherwise be left out of the investing game. By using technology and the benefits of digital, wealth management firms can offer these low-cost solutions to their clients – the costs of providing them these options are less than those of attracting them to higher-cost advice from an actual person.
As such, there is little need for panic from the wealth management industry at this stage.
For the fledgling investor with small, straightforward portfolios, these platforms give an opportunity for them to ‘wet their feet’ and get them engaged with the action of investing as a whole.
As these investors develop and grow, the need for more complex advice grows too – if the WM can offer a ‘cradle-to-grave’ service to their clients, loyalty to brand and continuity of service should leave the experienced wealth manager’s job well intact.
The only real threat is the wealth managers themselves – those who don’t adapt their business models to this two-tiered advice approach may indeed find they get left behind, and the loyalty to other brands overcomes the value of their years of experience.
At Spectrecom Films we understand the investment industry, working with the likes of Fidelity, Jefferies, Barings and the European Investment Bank. For anyone in this space, updating your business model means you need to communicate your plans to your contacts, ensuring they are engaged in the long-term as changes are made.
Video is most definitely one of the best ways to keep your contacts in the loop, so drop me a line if you are planning such changes for your own business and see how we can help you spread the word!
About the author
Client Services Director
Christiaan is our client services director, who has been in the industry for over 10 years, starting out as a filmmaker. He’s been at Spectrecom since day one so his company and business knowledge is unmatched.