Robo-advice – déjà vu


Robo-advice/robo-advisers appear to be the buzz words of the year in financial services. For those who are new to these terms, what is robo-advice/adviser?  Put simply it’s ‘what it says on the tin’; a system that provides automated, algorithm-based advice without the use of human financial planners/advisers.  The buzz word is not limited to one area of financial advice; it’s being talked about in many specialist areas across financial products covering the whole alphabet of products from annuities to…….whatever product starts with ‘Z’!  It’s certainly the big debate within my mortgage world.

Those who champion robo-advice claim that there is a substantial affordability gap between those who have enough money to benefit from traditional financial advice and those who require advice, but at a fraction the cost.  Recently, the Financial Conduct Authority [FCA] suggested that up to 16,000,000 people in the UK were in a “financial advice gap” where they need advice, but cannot afford it.  Clearly, any process that allows financial advice to be delivered to a wider audience needs to receive serious consideration.  The ability to give customers access to financial advice whenever they need it, using technology platforms that the customer is already comfortable with sounds attractive and robo-advice solutions have certainly been successful at attracting their own investments; through crowdfunding rounds.

It is not surprising that investors are keen to invest in robo-advice solutions as the FCA seems to be extremely supportive of these initiatives, even going as far as stating, in a recent report, that it “should set up a dedicated team to help firms developing mass-market automated advice models to bring these to market more quickly, and that HMT should consult on amending the definition of regulated advice”.  The work of the FCA might have been instigated because it was felt that “financial advice in the UK was not working well for all consumers”, but any clouding/confusion in the mind of the consumer regarding whether they are receiving (or perceive they are receiving) advice rather than limited robo-produced information allowing them to make an informed decision would be an unintended consequence of the drive to deliver lower cost advice services.

So do financial advisers and mortgage brokers need to worry that a robot will be taking over their job soon? 

I would suggest that any developments in this area proceed with due caution!  Haven’t we been here before?  I remember the extensive debates over what was effectively robo-underwriting.  I remember the very personal and very public debates between various senior officers of different lenders a decade ago who took very polarised views on automated underwriting.  There were those who passionately believed that underwriting could be achieved without any human involvement and that ‘the system made better decisions than humans’; claims which have been proven to be incorrect!  But equally vocal were those who believed that effective underwriting could only be achieved with a human mind.  As with many of these debates, the reality probably lay in the middle ground in that human underwriting was more effective when supported by technology which collected relevant information in a structured manner.

In the long run, robo-advice will turn out to be no different to robo-underwriting/automated underwriting.  Clearly, technology, even robo-technology, is extremely efficient at collecting hard facts (name, address, occupation, salary etc.), but it is not as effective, yet, in the nuances of soft facts (such as needs and circumstances).  In reality, we already have a substantial number of robo-advisers as most, if not all financial advisers, utilise some form of technology to complete their ‘fact-finds’ etc.

So do financial advisers and mortgage brokers need to worry that a robot will be taking over their job soon?  I don’t think so, in the same way that robots did not take over the job of mortgage underwriters, but financial and mortgage advisers do need to change – they need to embrace new development to streamline the parts of their service to give a wider audience access to their skills and knowledge at a rate that is more affordable to more people.


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Partner - Baxters Business Consultants - a business consultancy undertaking marketing, training, freelance journalism and expert witness services to the residential mortgage lending, building society and financial service industry (April 1993 to date) -

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