Much is being made about Robo Advice in the financial trade press for financial planners in Australia. Some commentators are almost suggesting it’s going to be a ‘Skynet’ moment, personal advice as we know it will be terminated. And while sometimes reality is stranger than science fiction, in this case I think the environmental risk to those who provide personal advice might be exaggerated.
It seems to me Robo Advice has been with us for years. We used to call it ‘Do it yourself advice’. Bookstores were full of books written by people about how to save and invest in just about everything. It actually requires an advice client to actually want to engage with the book (or website as the case may be now), learn something useful and apply it to their lives. But those who want to speak to a person, will still want to speak to a person. These people have never been DIY’ers. They don’t change the oil in their cars, they don’t have medical degrees to diagnose their own health issues and some of them don’t even mow their own lawn on the weekend. They outsource to people they trust because they don’t have infinite time or the interest in doing it for themselves.
The risk is likely to only be genuine to those who are aligned to one product brands like aligned planners who reside in banks and insurance companies. They are subject to the decisions of those who run those businesses with an accounting and finance degree bias. Those managers will make a decision, like they have in overseas market places, that the cost of hiring a person is more expensive than a virtual robot adviser and therefore make a financial decision about how advice is provided. It has nothing to do with what the client actually wants. This shouldn’t be a surprise – banks aren’t known for doing what their clients want so it fits within their business model.
To me, the Robo Advice model appears to really be about selling a product not providing personal and customised advice. It seems more like a direct sales channel to a product – a DIY offer.
From a business environmental perspective at the time of writing, I think the greatest risk to personal financial advice providers is from Robo Advice providers communicating their offers. If a client can’t clearly identify what the difference is between a Robo Advice Provider and a Personal Advice Provider then there is some real business risk.
Here are some ideas to get you starting on pointing out some of those differences:
- Robo Advice providers typically only sell one brand of products because they are owned by the product providers
- Robo Advice providers don’t offer complex advice services
- Robo Advice providers don’t offer integrated advice services
- Robo Advice providers from a customer service perspective are actually worse than a call centre, you don’t even get to talk to a person
- Robo Advice providers will treat you like a number in the system, because let’s face it, you are a number in their system
Clearly, there’s a role for the FPA and AFA in making sure the market understands the differences too. I’m not sure that they’d let a ‘Robo Advice’ provider become a member.
In closing these thoughts, I think we all should look forward though to seeing how comfortable ASIC are with putting the words ‘Robo’ and ‘Advice’ together considering what kind of advice this is likely to be.