As robo-advice becomes increasingly popular with clients wanting cheaper and more accessible ways to pursue financial planning, instead of fearing the evolution of financial services as we know it, financial advisers should see the real opportunity.
If used correctly to assist an adviser in providing clients with a service tailored to them, robo-advice can be an asset. An example is enabling an adviser to give clients more detailed information on their investment goals through using technology to generate information on their client’s needs, and then recommending suitable options to pursue. This happens quickly and accurately.
A hybrid model comprising of robo-advice and face-to-face human interaction is the most likely outcome. This approach will also be more accepted by those clients who are tech avoiders.
One of the risks robo-advice presents is that current algorithms may not be sufficiently developed to provide clients with advice on more complex products. Algorithms are essentially a set of questions used to solve a problem, so for the advice to be suitable, the series of questions will need to be as detailed as possible. Working through issues and finding solutions like these will ease the transition process of merging technology with a current advice model.
If customer needs are more complex such as around retirement planning, algorithms will need to be advanced enough to provide the customer with suitable solutions. Clients may not be aware of certain risks such as an underestimated lifespan or propensity for illness. This is where human interaction may be required to probe the client and have a detailed analysis to provide the best recommendation. A word of caution however; the speed of algorithm advancement using self-learning techniques will likely narrow the gap in the next few years.
Robo-advice can also make it easier for advisers to provide quick solutions for car, household, home insurance or low-risk investments. While we advance to a more sophisticated system of fintech, it is important to remain cautious, but to also be open to possibility and how change could improve your business. In this time, FSPs may find opportunity to partner with fintech companies to obtain the technology needed to provide robo-advice successfully, tapping into a new marketing strategy.
Regardless of whether a hybrid model is used or robo-advice only, the supervisory function will always require some human intervention. Compliance Officers and Key Individuals will need to understand the regulations of robo-advice in order to monitor and review the technological systems. Chapter 3 of FAIS Board Notice 194 of 2017 sets out the rules for monitoring that should be in place if an FSP is using robo-advice.
Technological literacy is becoming increasingly important in the financial services industry and this trend will accelerate in times ahead. It is inevitable that robo-advice will continue on a growth trajectory to throw an increasingly large shadow over the financial services market.
Robo-advice comes with risks attached but we should note that it is not a passing fad and best to get on board before it is too late. Indeed, current market players should embrace this, using technology to enhance and expand their services where appropriate, for a future-proofed advisory business to thrive.
Article by Tyran Naidoo, Compliance Officer at Compli-Serve SA