Written by Jon Dean on Thursday 2 July 2015
Automated, simplified advice is already with us. “Robo-advice” is the buzzword of the hour. Wealth Horizon is among the first in the UK to offer this for investment advice, and LV=’s new £199 CORA service is designed to help with retirement decisions. The concept is simple – program a set of rules or “algorithms” into a smart, user-friendly piece of software and let it make a recommendation based on the answers the customer enters into a website. These are essentially doing a restricted, cut-price version of what an IFA does now.
I see two key limitations with these current propositions. The first of these is that the customer still needs to engage in quite a significant way with the provider, early enough to build up a sufficient retirement pot. There will be a high drop-off rate as people get bored of entering their details and lose interest.
The second issue is the lack, so far, of a service that manages the customer’s ongoing needs in retirement. If the customer has chosen to stay invested (i.e. partly or fully in drawdown), robo-advice must consider their changing risk tolerance, and how much more vulnerable pensioners are to market shocks. They also face the risk of outliving their savings, and their mix of assets will inevitably be subject to several different (and continually evolving) tax regimes. Finally, they may be juggling opposing desires to maintain a certain lifestyle, leave an inheritance and provide for care in later life.
eValue are tackling the engagement issue with the help of Cambridge University, whose research concluded that financial education does not work. Instead, eValue’s 3-in-1 retirement planning tool uses the principles of game-play to coax people towards taking advice. Customers of their service are rewarded for entering additional details and exploring their options in more depth; the more details they enter, the more time they save an adviser and the bigger the discount they are offered when they move offline into traditional financial advice. Aegon now use this technology in their Retiready proposition, and it’s a huge improvement on their old web offering.
A logical extension of this would be to remove the need for the customer to key in their data. It is after all available in the hands of Experian and other data vendors, banks and providers themselves. Using the power of “big data” – last year’s buzzword – providers could massively improve the customer experience by shortening the buying journey.
So could the servicing of the customer’s ongoing needs in retirement be fully automated? We have the technology to detect fraudulent spending on credit cards, the first prototype driverless cars are being road-tested and now we even have “Minority Report”-style CCTV monitoring software that can predict crowd trouble before it happens. Surely then, it should be possible to define and automate a set of rules that pays the desired level of income from the most efficient tax wrapper, manages the various risks the customer faces in retirement, and alerts them when it detects that decisions are needed. Market crashes or sustained outperformance, or unusual changes in the customer’s spending patterns detected from their banking feed, could trigger a nudge to their smartphone or watch to revisit their plans. Couple this with artificial intelligence currently under development and we could find that financial advisers are not just forced into a war on fees, but ultimately replaced by machines.