FEAR OF ROBO-ADVICE AND THE ‘BIONIC PLANNER’

Should traditional advisers be afraid of the current proliferation of up-and-coming robo-advisers? Will they simply be disrupted, and become obsolete? Or is there a way for advisers to work with digital financial planners – to their mutual benefit?

This article was originally published on Professional Planner.

Author: Ben Power

Publication: Professional Planner

Many advisers are fearful that the explosion of robo-advice will make them redundant. With the likes of asset allocation automated, where does that leave them? It’s part of a broader concern that robots are about to steal our jobs.

But the reality for financial advisers is more complex, and certainly much more optimistic.

According to Marianne Perkovic, the outgoing executive general manager of wealth management advice at the Commonwealth Bank, we’re about to enter the era of the “bionic” adviser, where advisers harness the power of robo-technology to become more efficient and effective.

The bionic adviser, of course, is a reference to the “bionic man” in the Six Million Dollar Man, a US science fiction show that first aired in the 1970s. The main character, former astronaut, colonel Steve Austin, suffered injuries after crash-landing an experimental plane, and was given bionic implants that gave him superhuman strength.

Robo-technology scares people, Perkovic says.

“Advisers think their roles are going to go. But in a bionic sense, they’re still going to be there from a customer engagement perspective.”

Advisers aren’t about to have bionic implants (though that too is being forecast by some futurists), but Perkovic is right: rather than a threat, robo-technology is actually about to lead to the flourishing of advisers who can use robo-technology to collect and service more and more customers.

Robo-technology will also liberate them from mundane tasks and allow them to build deeper and more valuable connections with clients.

“A lot of advisers are frightened about what all this technological change means for them,” says Ian Dunbar, the author of Automated Investment Advisers, the first global review of robo-advice providers on a global scale, which was released last year.

“But this is the most exciting time to be a financial adviser,” he says.

Like most technology revolutions, the robo-advice industry developed in the US. Dunbar, now also chief executive officer of SuiteBox, which provides mobile office solutions for planners and professionals, says the flagship robo-advice firms such as Wealthfront and Betterment pioneered the direct-to-consumer model. Their model is to gather information online about an investor, perform an online risk profile, then recommend an investment portfolio for the investment. The portfolio, usually of ETFs (exchange-traded funds), was then managed. It is a completely online digital experience. There is no adviser in sight.

Robo-advice tools that will help advisers

But with conventional robo-challenged, Dunbar says there is another, possibly more powerful trend emerging: technology players using robo-technology to provide tools that help advisers automate processes and become more efficient.

“There is this absolute wave of innovation and technology that is transforming the advice industry,” Dunbar adds. “The vast majority of advice is still going to come through a human with a relationship. But technology is increasingly enabling smart financial planners to not have to do a whole lot of work that’s manual. It will enable them to be so much more efficient, and have more customers, and spend more quality time with clients.”

Rice Warner, in a recent opinion article, Does Robo advice compute?, said personal robo-advice would fall into three categories: fully automated advice with no human interaction; hybrid services that start with fully automated advice with various levels of sophistication, supplemented with the option of consulting a human adviser; and full-service traditional advisory services that leverage guided advice technology solutions. It says the final model “is the logical development of existing full-advice services, typically aimed at wealthier clients with more complex issues”.

The robo automation trend is being driven by players such as Ignition Wealth, Decimal, and incumbent planning software providers such as Midwinter, Provisio and IRESS.

But rather than eating advisers’ lunch, many robo players themselves want to work with planners, and to provide tools that make them more efficient.

“Everyone wants to be on the adviser’s desktop,” Dunbar says.

Macquarie’s OwnersAdvisory is one of the more high-profile robo style providers, though its product is radically different to the conventional robo online services. It has bought the power of institutional advice to the masses. Its technology scans 30,000 potential investments and produces a Statement of Advice that is granular to the extent it advises exactly how many BHP shares to buy.

OwnersAdvisory has a B2C version targeting retail clients. They pay $45 per month to become members and receive newsletters and articles. If they want a Statement of Advice, it costs just $55.

Robo bridges the gap

Infocus Wealth Management has also announced its entry into the robo-advice market with earnie.com.au, a free online financial, education and support tool, which integrates Morningstar and Praemium data and technology. Managing director, Rod Bristow, says the site aims to bridge the gap with the 80 per cent of Australians who don’t get financial advice. He says robo-advice isn’t about replacing financial advisers.

Infocus is using robo-advice as a lead generation tool as well. It will create an initial relationship with users online, but offer access to advisers. Earnie uses can manage their own investments, but also seek advice from one of Infocus’s financial advisers, initially through live chat. Planners can use earnie to explain the concepts of financial advice to clients.

“This gives users of earnie.com.au flexibility about how they want to engage with financial advice, and also means Infocus group advisers will benefit from engagement with more educated customers,” Bristow says.

Super funds are also looking to incorporate robo-technology into advice, but Ross Bowden, the chief executive of Link Advice, says that while there is a lot of discussion amongst funds in relation to their strategy for digital advice, many funds are adopting a “wait and see” approach.

To take the opportunities that the bionic adviser offers, planners need to act now.

“People who underestimate the future sophistication of robo-advice do so at their peril,” says Anthony James, the asset and wealth management leader at PwC Australia.

“It’s unfathomable that digital innovation won’t increase incredibly in sophistication in the next few years.”

But he is confident advisers will adapt and embrace technology. “Financial advisers are very good at adapting their business models,” he says. “We saw that with the response to FoFA (Future of Financial Advice) reforms. There is no doubt we will see that response to the emergence of new technology.”

“If I were an adviser building out for the future, I would want to incorporate robo,” says CBA’s Perkovic.

“People need to get comfortable with consumers today wanting to get advice delivered in different ways. Advisers should enable their business to deliver that.”

When it comes to robo-advice and the potential of the bionic adviser, she has a simple message: “Embrace it. Don’t be afraid of it.”

Source: goo.gl/6hMBF2