It was late November, dark and the eighties. I knocked on the door and was immediately welcomed in, offered a cup of tea and sat on the sofa. I’d never met them before, although they were expecting me and I wore a suit. And that night they were happy to sign up a Standing Order for £120 a month for the next 25 years.
As a financial adviser at the famous Prudential Insurance Company, I advised and sold hundreds of financial products to a myriad of customers, both rich and poor and my company serviced the vast majority of the UK’s population without asking for a penny in return. We ran a commission based business with the provider paying this. All over the UK similar sales people were operating in the same model and UK consumers never lacked access to quality advice.
Naturally some of this advice was rather dubious, we know this and our regulators have slowly fixed this in a very painful but needed manner, a little bit like removing infected teeth. Witness T&C, pension scandals, PPI mis-selling, FOS.
But progress is being made, particularly in encouraging robo advice models and removing the litigation hurdle many firms use to avoid dealing with the mass markets.
The last wave of the flag was witnessed with the eradication of commission on wealth and pension advice which came about in 2013. The regulator’s argument was that commission drove mis-selling and that accepting a fee only for the actual time spent with the adviser would produce totally impartial advice.
It did. It also reduced the number of advisers, both independent and restricted, to just over 25,600 and drove these advisers to service only the wealthiest customers who both value advice and could afford it. The rest of the population was left to wither on the vine.
Thankfully our regulators have instigated some changes called the Financial Advice Market Report or FAMR which has pretty much concluded what I said in the paragraph just before this one. But progress is being made, particularly in encouraging robo advice models and removing the litigation hurdle many firms use to avoid dealing with the mass markets.
Add this to the apprenticeship levy on firms which will encourage training of new advisers, and I do believe we’re on the right roadmap. So here’s my predictions on how it’ll all look in 2020.
Low cost – low touch advice
Robo advice will become ubiquitous. Generation Y and older Zs, who have money to invest, will go online and enrol in advice systems that are controlled by computer algorithms. The algos will create an investment strategy based around risk issues and other needs. Investing will be mostly in passive funds – funds tracking indexes, exchange traded funds and other software based funds requiring no humans apart from coders.
Remember Gen Ys trust computers more than humans. At the dinner table last Sunday my son asked me when the Beatles released Sergeant Pepper’s Lonely Hearts Club Band. I said 1966, he immediately checked his phone and Google said 1967, Guess who he believed? And rightly so.
They will access their funds’ performance online, pay very low annual fees, a fraction of that charged by active fund managers. The Gen Ys won’t want to see an adviser unless they are willing to, and they value personal service.
For those wanting the human touch, or those who are willing to pay a little more for their advice, the paraplanner model will work well. An online meeting with a suitably qualified individual starts the process. The video meeting or virtual reality equipment will simulate the face to face meeting as well as technology will allow. The adviser would be less expensive, a paraplanner, a new adviser with less experience, maybe someone training. The key here is that they are cheaper than a fully qualified adviser. They would carry out the factfind and engage with the customer. Specific and soft needs would develop in a similar manner to a factfind carried out by a fully qualified adviser.
The planner would then transfer the results into a robo system which would then create the advice. The advice would then be delivered to the customer. An alternative model would involve the advice being vetted by a qualified adviser, and then it would be delivered.
Regular reviews would occur automatically using the same process and the qualified adviser would only be involved as and when needed.
High cost – high touch
Available to those who are willing to pay fees in a similar manner to legal and accountancy advice. Ostensibly the same model as we’ve seen before; a series of face to face or virtual reality meetings would evolve into personalised advice being provided. The best advisers would still use robo systems to augment their advice, these systems would do much of the crunching and administration but they would still be involved in advising and vetting the results.
Increasingly fund management would be conducted using passive methods, i.e. no active fund managers, as robo systems and algo based programmes become more and more reliable and effective. Humans will be moved on from this role except for the high end hedge funds.
The end of the face to face advising era will soon become apparent as communication via virtual and augmented reality gradually replaces personal interactions. I’ll still appear in my customer’s front room and be able to build rapport and trust, but I won’t be able to drink a cup of tea provided by the customer, that might be around in 10 years further on.
A Peek Into 2030
And 2030, we’re talking about a completely different model for receiving financial advice. Here’s a peek.
The IFA that we know today will be doing another job. What kind of job we don’t know, since it hasn’t yet been created. She will be doing something mentally demanding that automated intelligent computer systems can’t yet do.
Financial advice of any sort will be recognised by your personal digital assistant. This is the conduit we will all use that accesses what we currently call “Big Data”; data held in the cloud that has been collected about you since the early part of the century. Your assistant, which we’ll call Lola, knows you and everything about you from the myriad of sensors that have been gaining data.
Government computer systems covering your education results, tax returns, the car you drive, your visits abroad. Retailer systems showing everything you’ve ever bought. Tesco showing everything you’ve ever eaten. Banks displaying all of your financial transactions since you were born. Bear in mind cash was abolished in 2020.
Your wearable technology screening every signal from your body – exercise routines, blood pressure, illnesses. Your car data showing every journey you’ve taken. Social media streams with enormous amounts of data on your life.
The list goes on. Lola knows everything about you and you rely on her as your life coach. So when you need financial advice, Lola has already picked this up and will offer it to you without you asking. She recognised the inheritance in your bank account and understands your risk attitude and your goals for the future, so she’ll link to some algorithms in the cloud and provide the advice automatically. It’ll just happen, you’ve allowed it.
She’ll know when you need a mortgage from your email and social media steams and will just find one that is suitable and arrange it. No humans, just algos, no intermediaries, no need.
Life insurance. There’ll be no such thing because Big Data will know from your genetics, wearables and DNA, how long you’re going to live for anyway, so accidental life assurance will be offered at individual rates direct from the cloud. Motor insurance? No need, you won’t be driving the car anymore and accidents stopped in 2022.
And we’ll look back at the days of individual IFA practices in the High Street, bank branches, football pitch sized call centres and the Man from the Pru with a sense of nostalgia, as the replicator makes you a cup of tea. Tea, Earl Grey, hot.