“I, robot – can the US robo-advice model disrupt the UK?” – part 2

“I, robot – can the US robo-advice model disrupt the UK?” – part 2

In part 1 of this article, I looked at what it means to be considered a ‘disruptor’, and asked whether the US-style robo-advice model would really challenge the existing order in the UK.

I concluded by suggesting that while these lower cost models will undoubtedly have their place, they are effectively lower cost versions of what we have already, where they all believe that they are the centre of their customer’s financial universe. And I absolutely believe this is not the case!

Part 2 of this article I look at where the real opportunity is…….. and who I believe will be the winners and losers in this crowded space, where creating a differentiated and compelling customer-centric proposition is key.

The real opportunity?

So where is the ‘white space’, the opportunity to really connect with the customer? To me it’s combination of a lower cost platform model combined with a more customer centric approach – a model where the business recognizes it is just a single (but critically important) piece in a rather complicated jigsaw, just one part of the customer’s financial ecosystem, and integrates deeply with an aggregator business, which brings together the many and various assets and debts of the customer into a single, sensible and coherent presentation. The aggregator then adds real value by helping the client make significant decisions, such identifying where investment costs can be saved during the accumulation phase, or how to optimise their retirement income tax position, either through using online tools or by providing a link to an adviser.

It is this model which really excites me, the model which I personally believe has the most potential to disrupt the UK financial services sector. And the game-changer will be when more consumers realise there is actually a better way, just as Uber has done when you want to order a taxi. A way that truly begins to put the customer at the heart of the proposition, a way which aggregates their entire portfolio of short, medium, and longer term assets, debts, banking, and spending; helps them identify lower cost or more appropriate options; helps them manage the different ‘pulls’ on their money; helps them plan for a better future, and manage it once they’re there!

Some exciting, relatively new organisations are already operating in this aggregator space in the UK market, testing what works and what doesn’t, refining their propositions. Offering many services for free, and then charging a fixed £amount for the real value-add services they provide.

I fundamentally believe that clients do not just want ‘platform technology’, or indeed ‘robo-advice’ – they’re enablers to achieve lower cost and a better online experience. And whilst that’s important, what they want – and as they get older, increasingly need – is an integrated online experience that includes financial planning so they can access human advice, too, if and when they need it. The key point is to reduce costs wherever possible in the value chain, but not to cut out expertise and human advice when it’s needed most.

Recent research indicates that the average account size for robo-advice in the States is currently around $20,000. By attracting prospective clients in the earlier stages of wealth creation – and then holding onto them once they’ve accumulated $250k, $500K, $1 million, by offering real value-added services and advice from a human when it’s needed – that’s an exciting evolution of where we are today. And no reason why it can’t work in the UK too, despite the complicated regulatory regime.

Winners and losers

And the end-game? Will these new disruptors really dislodge the ‘big boys’?

Truth is, it doesn’t really matter. Why? Because what we will witness – indeed, what we are already witnessing – is a reaction, a move by the larger corporates to ‘protect their turf’.

Areas of the value chain where there is currently too much fat are becoming leaner, and businesses are getting tech-smarter, trying to become more customer centric. They’ll achieve this by either copying – or buying – those ‘annoying’ little upstarts! And this can only be good for the consumer.

Of course, there will always be some businesses that do not get it, either by not recognizing (or ignoring) the threat, or by simply being unwilling to disrupt what at the moment is a ‘working’ business model. And to be fair, even in the States, according to recent research from MyPrivateBanking Research,robo-advisers will only have around $14 billion under management by the end of 2015, growing to $255 billion by 2019. Until the incumbent businesses see significant assets moving to these new models they are unlikely to react. But don’t all disruptions start small? And history is littered with high profile examples of businesses that took a similarly myopic viewpoint – think Kodak, Blockbuster, Blackberry, Woolies, amongst many others. Unwilling to change, or simply not recognizing the fundamental changes taking place around them, changes that would challenge and ultimately displace them from their leadership positions?

Others of course – the visionaries and the innovators – encourage pursuing the disruptor market opportunities, even if it means disrupting their existing business model. They understand that to not only survive but to thrive they must adopt new approaches, new thinking. They understand how rapid changes in technology and infrastructure will disrupt their existing business, whether they like it or not. They use data – the data you and everybody else provides when you use their platforms and applications – to predict the future, not analyse the past. And then they act on it.

We’re part of the transport ecosystem in London – it’s only one part. You can’t just have Uber. You can’t just have black taxis,” Jo Bertram, GM Uber UK.

Robo-advice and portfolio aggregation – coming to a competitor near you.

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