As we reported on Financial Planning Today this week, information provider GlobalData reveals in its latest research that the number of mass affluent investors in the UK who say that robo-advisers are their ‘preferred investment provider’ has risen from 1.3% to 4% in a year.
Those are still small numbers but it’s a big jump in one year. While it’s too early to call it a trend GlobalData says “traditional players need to take notice to avoid losing clients to automated investment services.” I would include Financial Planners in traditional players.
The big question is why is this happening? GlobalData is less clear on this but does suggest the robo-advisers have begun to get their act together.
They are spending millions on advertising, they have refined their product offering and some, like Nutmeg, have added on the option to add human advice too. In other words, after 10 years in existence robo-advice is maturing as a sector.
It’s fair to say so far they have failed to win significant traction with consumers. They have targeted mainly younger, perhaps more internet-savvy investors but they are people in the main who spend more, earn less and have less to invest.
Robo advisers will need to target mass affluent investors in a big way if they are really to take off and this may be the major threat to Financial Planners who need to wake up to this danger.
Some are doing just this. I’m impressed with the number of planners trying online advice ventures themselves and using technology better. Back office systems are improving too and driving efficiency.
Many now offer clients the ability to track their portfolios online via their sites or apps. Many too are effective users of social media such as Twitter and LinkedIn and use them to help find new clients. They are, to a small degree, becoming a bit more like Nutmeg but it’s here the difference lies.
In our latest Financial Planner Survey carried out during the summer (you can read coverage of the survey on Financial Planning Today) planners told us that they were embracing technology but mostly embedding it in their Financial Planning service. Many are using video technology and online systems to engage better with clients but their USP was not changing - face to face advice.
I can see a future where many Financial Planning clients will be perfectly happy to engage with their planner via video technology or telephone / online audio and face to face meetings will be less frequent but it’s hard to imagine a scenario where this is the only way to offer holistic Financial Planning.
The planners’ secret weapon will always be a comfortable, well maintained office and the offer of a cup of tea and a chat about clients’ dreams and concerns. A bespoke approach robo-advisers will never replicate. It’s a personal service that is impossible to replicate with an algorithm.
I attended a Financial Planner seminar recently where a number of planners spoke. Their attention to personal service and the obvious close relationships to clients was hugely impressive.
Even so, planners need to understand the world is changing and technology will alter the way clients work with all businesses (or wish to work with them). Technology can, however, be harnessed to improve the Financial Planning process if it’s used well.
Planners can learn from robo-advisers and use their best ideas to develop and prosper but ignoring the robo-threat will not be a wise move.
Kevin O’Donnell is editor of Financial Planning Today and a financial journalist with 30 years experience. This topical comment on the Financial Planning news appears most weeks.