22 January 2016
Space Money Talks is our new series of debates, research and reports bringing together key groups of advisers, providers and other experts in the field to discuss a topic in detail.
Our first debate about Robo-Advice takes place in London on 23rd February. Our plan is to thrash out the big issues surrounding Robo-Advice with related webcasts, a report and consumer research.
We will be giving information about the participants in the next couple of weeks.
But in the meantime, to whet appetites for the debate, we have also put together what we believe are the ten really big questions below.
1. What is Robo-Advice?
One man’s robo-adviser may be another woman’s glorified decision tree. Understanding exactly what we mean by Robo-Advice could prove vital to the debate. Does it have to involve complete automation from the customer logging on at the start of an online journey to receiving a recommendation? What if customers dip in and out, transact elsewhere or even need to speak to a real person in the middle?
2. How do we encourage consumers to use a Robo-adviser?
At Space, we know the technology is there to deliver Robo-Advice. Yet we don’t know whether people will be prepared to sit down and use the service in large numbers, especially if they don’t have an urgent need. Has web behaviour changed significantly enough to make it less of a challenge in 2016? Does that apply to all generations? If not, what sort of marketing will it require to get large number of people interested?
3. Will people be prepared to pay for Robo-Advice and if so how much?
We know that consumers will answer questions, input information and use calculators and slide rules with the aim of understanding their financial position often in terms of their investments and pension savings. They may transact which involves paying in some way, but will they be willing to pay for the ‘advice’ part of Robo-Advice and if so, how much?
4. What sort of firms will offer Robo-Advice?
Some providers are very interested in the concept and argue that they are already providing Robo-Advice or something very close to it. The high street banks are considering deploying their strength in brand and data as they mull a re-entry into mass market advice. Much will depend on the internal business and regulatory case. Fund managers may be keeping a close eye on developments as their sources of new business may change. Some consumer platforms want to enter the market while several advice businesses are also running separate Robo-Advice services or have plans to do so. Comparison sites have a track record in winning and keeping customers but to date, their biggest business line has been general insurance. Finally, could the ultimate winner be a search engine, a social media platform or an e-commerce giant?
5. Does Robo-Advice really suit the whole advice journey?
It is interesting that the Investopedia definition suggests that Robo-Advice is currently only being applied to wealth management specifically accumulation. Is this correct or can Robo-Advice apply to much more complicated advice problems including pension income choices, tax planning and even estate planning?
6. Will advisers see Robo-Advice as threat or embrace it?
This is a significant question and not just for advisers. Providers will want to maintain good relations with their adviser business partners. Yet advisers may also see Robo-Advice offered by providers as a business threat as they once did with direct sales. Alternatively, advice businesses may also wish to offer their own Robo-Advice to clients with smaller portfolios. Will providers or platforms especially adviser only platforms help advisers white label this type of service? Much probably depends on portfolio sizes and more. Most believe advisers will maintain market share by value at least and that Robo-Advice will reach new customers. Some advisers are worried they could lose out to the ‘march of the machines’.
7. What changes if any will we see from regulation?
It is impossible to divide the Financial Advice Market Review from the issue of Robo-Advice as the review team and its industry advisory board mull new models and regulatory changes. We discussed many of these issues in an earlier blog on the Space website – the best firms have been working on the FAMR for years. They just didn’t know it. In terms of FAMR and Robo-Advice, we might ask will a new advice channel be created and, if so, will it be suited to Robo-Advice? Could a limited Robo-Advice service benefit and be allowed to benefit from a safe habour i.e. lower or shorter-lived liabilities? Are the rules governing suitability sacrosanct? Many firms are determined to offer something like Robo-Advice without further regulatory help, but they probably wouldn’t turn down any help that FAMR could give.
8. What exactly does a good outcome look like and can we design out bad ones?
You might argue this is two questions – but in many ways they are two sides of the same coin. Is it possible to design out certain routes and decisions out of Robo-Advice, perhaps by limiting what a Robo-adviser can recommend? Could this stop misadvising? In terms of seeking good outcomes can Robo-Advice always deliver to the high standards required by the advice rules?
9. Is Robo-Advice the answer to closing the advice gap?
This is surely the $6m dollar question or more accurately the several billion pound question. Is Robo-Advice the route by which we get more people saving, investing, insuring and managing their retirement better? Can we hope to have more of the population becoming financially resilient?
10. How do we know/measure if it is working?
Is this a matter of counting the number of Robo-Advice services offered by functioning businesses? Do we want to see a big increase in levels of investment or insurance and higher levels of pension contributions? Or alternatively do we want to see a bigger proportion of the population who have sought and followed advice in the last year or two?
So those are our thoughts for now. We are very interested in your views too, especially if you think we have missed a glaring issue or question. If so please email us marilyn.cole@space01.co.uk. We aim to find some of the answers in the next few weeks. Watch this Space…
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