Mis-buying humans, mismatched expectations & the ‘hybrid’ future of advice in the digital age

05 December 2016

The juggernaut of algorithmic-based ‘robo-advice’ models continues to roll on, attracting investment (estimated to be over $6 billion globally), headlines, new FinTech competitors and board level interest. Whether it's catering to millennials, or addressing the ‘advice gap’ for the masses, the potential of digitally enabled automated advice continues to be a source of ongoing attention and excitement. Many people think that the rise of robo-advice won’t stop there, as opportunities for richer experiences, gamification, greater customisation and the more dynamic management of available funds draw in customers further up the wealth spectrum.

Left to their own (digital) devices

Let the masses self-serve and give more human interactions to those with more money, seems to be the emerging service model for most of the UK wealth management industry.  Consequently we see a lot of time and money being spent on enhancing and launching D2C (Direct to Customer) propositions allowing mass-market customers to self-serve and procure investment products.

Except the less you have, the less you can afford to lose and it appears the less capable you are to self-serve. When we interviewed 400 consumers earlier in the year, we found that, more than 80% of mass-market consumers have limited or no knowledge and experience of investments. However, given the opportunity 40% of them would still prefer to DIY and not pay an advice fee. This opens up a massive risk of ‘mis-buying’ thereby requiring the industry to adopt a considered approach to the D2C propositions. 

In brand and humans we trust

The shift towards robo-advice could, and perhaps should, be a boon for FinTech start-ups. But brand still trumps technology, with our research showing that most consumers are still reluctant to trust their money to a start-up, preferring large advisory firms and retail banks instead. And however informative and interactive the website or algorithm, consumers still want human interaction when making investment decisions.

Hybrid advice designed around the customer

What this suggests is that it’s far too soon to write off human advice. The dominant model is therefore set to be a hybrid blend of human and robo-advice. Banks’ customer access and ability to offer a combination of digital, call-centre and face-to-face interaction gives them an advantage within a marketplace where consumers want advice on their terms and at their convenience. But banks face the challenge of bringing all the channels together in a cohesive way. They also need to be able to offer a ‘whole wealth’ view of the client that matches behaviour, aspirations, expenditure, financial means and personal profile and isn’t designed around ‘products’. Apart from availability of data, the lack of a truly ‘customer-first’ approach remains a key barrier.

This backdrop of customer expectations of ‘advice on my terms around my goals’, which requires bringing the best of digital and human interactions together in a seamless omni-channel choreography, puts in context the reasons why traditional approaches aiming to sell investment products without giving advice, have yet to gain traction in the marketplace. Whilst banks are well positioned to deliver the hybrid model, it remains “Open Season” for insurers, wealth managers, asset managers or any other organisation to deliver on these expectations. As for the FinTechs, partnering with a well-known brand is likely to be the main route to market, for now at least.

Future of advice

So while consumers badly need advice and new models are emerging to meet untapped demand, we’re still a long way from realising the full potential of digital financial advice. And that in turn opens up significant opportunities for businesses that can combine the key features of trust, technology and data to deliver for the customer.

Looking ahead, will there still be human financial advisors in 2025 or will robots be ruling the roost? Yes there will be human advisors, but they’ll have their work cut out in generating insights and solutions that consumers can’t get online. And while it’s machines that currently serve the advisors, the balance could eventually shift to humans supporting robots as points of contact, interaction and evaluation in an otherwise digitised offering.

                       

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