Is it possible to sell a product online and offer advice without human intervention? Martin Wheatley caused a stir recently when he answered yes to this question at a Treasury select committee.
Viewed in the context of a rapidly growing direct-to-consumer (D2C) platform market, as evidenced by recent Altus research, it is tempting to see this as confirmation that the balance of power is shifting from advisory platforms to their D2C cousins.
The threat to financial advisers from this shift is obvious, but is it really feasible for technology to enable novice consumers to do the work of highly qualified financial advisers who have spent years studying the complexities of investment?
Scepticism over the ability of technology to change the way we work is nothing new. In 1876 Sir William Preece, chief engineer of the British Post Office, saw little threat to the established order from the latest US invention: “The Americans have need of the telephone, but we do not. We have plenty of messenger boys.”
As the messenger boys found out, technology has the power to radically transform the employment landscape.
The exponential growth in cheap computing power along with the ability to store and access huge quantities of data is now opening up whole new areas of society to automation.
A recent academic study by Carl Benedikt Frey and Michael A. Osborne which looked at more than 700 occupations and how susceptible they are to computerisation concluded that non-routine, cognitive roles are rapidly becoming vulnerable to automation. The study calculated a probability factor, ranging from 0 to 1 for the automation of 702 occupations and placed financial advisers firmly in the at-risk category with a score of 0.58.
Academic studies are one thing, but this shift is already underway in the real world too with a number of new technologies encroaching on the traditional domain of the adviser. For some time, investor websites have offered community areas where investors compare notes and experiences to support their investment decisions which are then typically transacted via execution-only services. This crowd-sourcing of advice is the thin end of a wedge that now extends to showing investors how similar users are behaving and how their portfolios are performing thus enabling them to follow the “wisdom of crowds”.
Firms like eToro, FxPro and Ayondo are bringing still more functionality of social networks to the world of investment and creating a new market in social trading. The ability of relatively novice investors to follow and copy the activity of more seasoned traders using sophisticated online technology is a rapidly emerging threat to personal investment advice; eToro, one of the early pioneers, already claims to have more than 2.75m users.
Tackling the challenge of online financial advice head-on, are a relatively new crop of automated advice tools which seek to perform a significant part of the adviser’s role. Money on Toast’s “Doughbot” guides users through a series of questions before providing them with a fund recommendation which is described in their terms of business as regulated advice albeit simplified. Wealth Wizards provides a similar service targeted at pensions and with a focus on keeping it simple.
The final and possibly most disruptive technology development to consider is the use of big data to build highly accurate profiles of individuals based on their internet footprint.
At last year’s Platforum conference, Nic Gorey of Rocketer gave a remarkable demonstration of how his firm was able to build a personality profile far more accurately than any risk profiling tool based solely on analysis of an individual’s social media data. With access to even more revealing data points, credit scoring firms like Experian may well be able to go further still with this type of individual profiling to the point where a financial fact-find can be completely automated and used to check the suitability of an individual’s investment selections before they commit.
The threat to face-to-face financial advice from these technologies is clear and regulation, in the shape of the RDR, has been a big driver in their development.
It is ironic then that the FCA is currently the advice community’s best defence against their adoption thanks to its hardline stance on what constitutes advice and the liability that goes with it.
Whether this approach is sustainable in the face of the current technology revolution is highly debatable and financial advisers would be well advised to learn from history in a way the FCA seems unlikely to. Those advisers who embrace new technology and work with it to develop new services are ultimately likely to be the real winners.
Kevin Okell is head of consultancy at Altus
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