What comes to mind when you picture a financial adviser? Is it an old man in a suit? A young millennial with several degrees?
Chances are, you’re simply picturing the last person you received financial advice from, if you have in the recent past.
In truth, what it means to be a UK financial adviser has changed dramatically over the last ten years. Whereas the industry used to be a sales-driven, slightly ethically questionable setup involving commissions being paid to advisers directly from the investments their clients were taking positions in. That’s all behind us now.
Let’s look forward.
The financial advice industry faces a major challenge over the next decade: automation.
The statistics pulled together by futurists have long predicted that the rise of artificial intelligence, big data and other new software products have the potential to revolutionise the world of work. This includes the financial advice industry.
Automation of financial advice is already here
You may have already heard about the existence of ‘robo-advisers’. Unfortunately, I’m not here to tell you that robo-advisers are android robots with a human form, who wear suits and deliver financial advice to clients in air conditioned offices.
Robo-advisers are an automated investment service. From the client perspective, this is what being a robo-adviser customer looks like:
You register for a new account online. Robo-adviser services are usually accessible only on the web, and do not have telephone services in the same way that a discount broker or stock broker might offer.
You fund your account with money via debit card or a bank transfer.
At this point, you’ll take a questionnaire which will ask you all about your investment objectives, your appetite towards taking risks with your money, and perhaps even your current financial position.
This creates the data that the robo adviser will use to assign you to a model portfolio.
In the meantime, you will be asked if you want to set up a monthly standing order or direct debit to enable a regular drip feeding of cash into the investment account. This is a good feature of any investment platform, as it works wonders to funnel money into the stock market without you even having to think about it.
And that’s it, the robo-adviser will present you with a proposed portfolio. It won’t show you more detail than you need, but suffice to say that the names of funds it plans to invest in, and how the service intends to roughly allocate your money to different asset classes is a common feature.
Expect to see plenty of colourful and easy-to-read charts, together with simple summaries of your overall risk level.
The reality of robo-advisers
Behind the scenes, the level of automation actually in play will vary from service to service.
After all, a client only sees the trades and portfolio changes which appear in their account history.
Whether these are actually the result of a brain computer algorithm or whether a human has had a hand in reviewing and approving the changes will be a mystery.
This technicality sounds important but it isn’t really the big question. The big question is, how will the availability of these user-friendly services impact the demand for traditional financial advice?
Because the robo-adviser experience is essentially hands free, a novice to investing may feel confident enough to click the ‘invest’ button following the carefully managed introduction to the service and its proposed portfolio.
Will this convert long-time recipients of financial advice to the dark side? Only time will tell. Robo-adviser services are cutting edge and currently only have small numbers of customers compared to stockbroking services, fund supermarkets, and financial adviser platforms. It’s unlikely that they are running at a healthy operating profit just yet.
Until then, this period of time is the opportunity for financial advisers to demonstrate why the human element of investing will always be needed.