This week’s guest blog comes from Abraham Okusanya at FinalytiQ. He’s a prolific writer and commentator on financial planning issues and I always follow what he has to say with great interest. I really love his take on the opportunity that disruption from robo-advice may provide for good quality advisers. If you’re interested in the future of our profession, then read on.
Abraham Okusanya: United Kingdom
Abraham is the Principal at FinalytiQ, an expert in Investment Propositions, Wrap Platforms and Suitability for Financial Planning/Wealth Management firms.
A Chartered Financial Planner and CFP Professional with over eight years’ experience, Abraham holds a Master’s degree from Coventry University and several financial services qualifications including the Investment Management Certificate (IMC). He is a keen advocate of Evidence Based Investing and sits on the investment committees of several financial planning firms.
Abraham co-chairs the London branch of the Institute of Financial Planning. A prolific writer, his articles regularly featured in leading industry press including FTAdviser, NewModelAdviser and ProfessionalAdviser.
Robo-Advice: Threat or Opportunity?
Remember Sir Isaac Asimov’s First Law of Robotics? It goes something like ‘robot may not injure a human being or, through inaction, allow a human being to come to harm’. While Asimov’s laws were intended as a literary device, they could be seen as a prescription for avoiding the robopocalypse.
Why then is it that industry trade publications are awash with articles claiming that robo-advice is a threat to financial planners? Indeed, some planners approach the issue with a degree of trepidation at the thought that robot could make clients question the value that they bring to the table. Some planners worry that it would prompt a bit of price compression, specifically in relation to percentage of AUM charging. Of course, some planners are very positive, even excited at the prospect of being able to offer a robo-advice service to the so-called ‘low value’ clients, to whom they have hitherto been unable to afford advice.
What many seem to miss, is that the biggest impact of robo-advice is likely to be in enhancing services being offered to existing clients.
For the vast majority of real financial planners, robo-advice is actually more help than hindrance.
Post RDR, most firms now have a robust investment process in place. The problem is that the process is often admin-heavy, with lots of repetitive tasks carried out by well-paid administrators and paraplanners. This reliance on people to do the mundane and repetitive tasks is often a clog in the wheel of comprehensive planning and is one reason why financial planning is so hard to scale.
The current model of financial planning is pretty time-consuming and inefficient, with highly qualified planners and paraplanners spending valuable time on data gathering, keying and re-keying data, on-boarding clients, and carrying out tasks that could be automated.
Even with best efforts, in many instances it can take between 6 to 8 weeks from the point when a new client signs up through to full implementation of the plan. This indicates a real need for technology and automation, and robo-advice presents a unique opportunity to take some strain out of the planning process. While robo-advice emerged in the US as services offered directly to consumers, increasingly many of these services are pivoting to become tools for the advisors.
Take the rebalancing process for example. Many small advisory firms carry out their rebalancing process on a client-by-client basis, often after the review meeting. This is very time-consuming, not to mention the potential that exists for human error. For firms that have centralised the rebalancing process, it still takes considerable time and effort to prepare rebalancing instructions, obtain a client’s authority, and check and recheck the cost and CGT implications before eventually clicking the button to process a trade.
Even for some of the best-run financial planning practices, rebalancing 100 clients with say £100 million of assets could take anything between 20 – 40 person hours. Add to that the opportunities for error and it becomes pretty clear that this is really a task for robots, not humans.
Another area that could benefit from robo-advice is client reporting. I have written previously about why client reporting on platforms sucks. The user interface is pretty awful, and boring asset allocation pie-charts mean very little to clients. Robo-advice, on the other hand, can provide a great user interface, account aggregation functionality, and enables interaction between the client’s asset and their goals/objectives. This turns client reviews from a calendar driven event to one driven by client needs and the changes happening in their lives.
The upshot of this is that planners and clients can work in a far more collaborative way.
All of these issues beg the silly question: ‘if we automate all the mundane and repeatable tasks in financial planning; what will planners do?’ This question is silly, because it undermines what planners really do. I mean, who enjoys working long hours, spending time on repetitive tasks? By automating the repetitive tasks, planners will spend more time understanding clients’ goals and aspirations; designing and implementing the strategic aspects of planning including tax, trust and intergenerational planning, and (if there’s still any time left) maybe spend that time on finding more clients and scaling their businesses!