The Dawn of Part-human-Part-machine Financial Advice

op 02 March 2016 in Highlights

Advice is taking on a new shape. As in many countries, disruptive technologies and developing legislation are challenging  traditional advice models and the industry as a whole.  In the near future, the traditional financial advisor in a face-to-face setting will be complemented by a diversification of services and many more digital solutions. It might be seen as a threat to existing business, however, this is not at all doom and gloom.

Research from E&Y shows that shows that forward thinking financial planners and organisations who develop customer-centric models of advice are more likely to succeed. These multi-channel models embrace new digital solutions, and help the customer better prepare for their future.

Truly multi-channel advice

Advice will over time morph into a part-human, part-machine service which is truly multi-channel. Today’s consumers live in a hyperconnected world, they interact with ease across numerous channels and expect a seamless experience both offline and online. Effective multi-channel therefore effortlessly blends the digital self-help world with more traditional channels; call centres, face to face and bricks-and-mortar.

Client engagement and online collaboration

In the multi-channel world, technology opens up numerous possibilities for both the financial advisor and the customer. It enables advisors to create and maintain an up-to-date full customer profile, accessible by them and their client. This profile is a necessary step in order to provide insightful advice, it also enables extensive lead generation. It encourages client engagement and online collaboration. By actively participating in the co-creation of their own financial plan the consumer is better equipped to understand their financial plan, and adjust it as their life goals change.

Robo-advice to bring financial planning to the mass market

Robo-advisors are one of the latest technology trends to affect personal financial advisory. These online offerings use algorithms to advise on diversified investment plans, enabling the consumer to make a direct on-line purchase in a fraction of the time and cost. Plus they represent the start of what can be a long term relationship with the consumer. They are easy to use, well priced and are already very popular in the United States. In countries like South Africa, Robo-advice provides a new mechanism to bring financial planning to the mass market.

Human advice for more complex decisions

While it is easy to see why robo-advisors have a place in the market, it is important to recognise that good financial advice still requires human insight. The need for a good advisor is unlikely to be replaced.  In particular, human advice is called upon by many entry level consumers who have grown their net worth and are looking to make more complex investment planning decisions. The same applies for high networth individuals facing complex financial decision making.

A blend of digital solutions and traditional advice

It is therefore likely that the future shape of advice will be a blend of digital solutions and traditional advice. Advisors equipped with the right technology to support the different categories of clients and can shift with different levels of complexity in multiple channels, will most likely succeed in this new era of financial planning.

In this new part-human, part-machine world of advice these two strategies will help deliver a more sustainable business model:

  • Offer a fee based financial life planning model where advice is a product, and customer centricity is key. The primary focus is on the advice given, with a secondary focus on the products.
  • Automate, commoditised and standardise advice and sales to the mass market. Robo-advice may help bring the cost of services down, making it more profitable to serve more clients in less time, albeit at a smaller margin.

Make a strategic move

Now is the time for traditional brokers to make a strategic move. No matter which strategy chosen, it requires investment in knowledge, processes and technology. It is the industry players that adopt a customer-centric approach and use technology to provide accurate, timely and tailored advice that will more easily navigate these challenging times.