First things first, I reluctantly use the title "Robo-advice". If you follow me on Twitter you might have seen that I think the title is nothing other than a journalists wet-dream, but I've succumbed to using it because it's what most of the industry use. Somewhere, an innocent rabbit is being killed every time that phrase is used.
I've just finished reading an excellent blog post by Finalytic titled "Isn’t ‘Robo-Advice’ Just A Distraction For Most Advice Firms?" and it's roused enough emotions that i've written this. I would suggest reading Abraham's thoughts before jumping into mine, as i'll probably cross-reference below.
Who's got the foresight?
Okay, so one of the points that really got my back up on the original post was that it's Abraham's view that advisers should just be chasing pots of gold. I've been vocal for almost a decade now about how the financial advice industry is properly squiffed when it comes to paving the way for it's future. Yes, the easy option is to chase pots of gold (HNW, retirees, offshore trusts ;-) ) but what happens when everyone's been financial-planned to the moon and back? Eventually, that market of HNW clients are going to diminish, and you'll be left with the general public, and god forbid, the youth of today!
It saddens me beyond words that very few advisory businesses have tried to build a client manufacturing line; i.e. actively engaging with the younger / less wealthy audience to build up brand loyalty. I'm not an adviser, but it baffles me why you wouldn't attempt to do this, even if you fail (i'll come back to this later).
Sure, those under thirty might not be loaded and considering which Land Rover to purchase next, but if the importance of cash flow and planning was instilled in them from a young age by a charming local financial business (that's you!), the chances are it could actually lead to something in the future. At this point you might be thinking "What on earth could a business like ours offer to that generation?". Well, i've taken some time to detail a couple of ideas :
- A low-cost budgeting tool with examples of how life events can change everything. Almost like a watered down cash-flow tool, but with the view it's used weekly to plan budgets etc.
- A "prodding" service, where someone can subscribe, enter their age and their expected retirement date and the service automatically notifies clients when they should be considering certain parts of their financial future, like organising a pension, savings, mortgage, life cover, long term care (the list goes on).
- A form of "life-simulation" that aims to teach people the importance of good planning, saving and financial decision making through a game.
These are just a few ideas that come to mind whilst sipping coffee looking out into the glorious sunshine this morning, and i'm sure there are some really obvious ideas i'm missing. The fact is, technology is cheap; you've only got to think of an idea.
Be realistic about take-up
It'll take a long time for a decent client bank to build up, but that might not be your intention anyway. I've spoken to many advisers about their use of robo-advice, and for a large portion, they only have it to provide a channel for existing or new clients to "do it themselves". I'm sure in many cases this is to free up time best spent with HNW clients?
If you do launch an online service, it'll be the equivalent of pushing a large snowball up a hill. It'll be a slog, until a pivotal moment and at that point, you better hang on for good measure! Don't fool yourself that "This time next year Rodney..."
Failure is an option, and don't be ashamed of it
I'm going to ignore the failure shaming part of Abraham's post a little and just reiterate this:
When Dyson invented his first Dual Cyclone vacuum cleaner, which hit stores in 1993, he spent 15 years creating 5,126 versions that failed before he made one that worked. The payoff was a multi-billion dollar company known for its creativity and forward-thinking designs.
That quote is from here, but the point in hand is that not everyone will succeed. I think the key to success with a robo-advice platform is to be different, and to do things properly.
But my biggest gripe about this robo-advice situation..
My biggest gripe, from a technology advocate, is that everyone's becoming a sheep.
A number of providers out there have very kindly created some turnkey offerings that make launching a service as easy as signing on the dotted line and emailing a logo to them. That's awesome, but what exactly is your product? The service you're offering is not your own, but a service you're renting from the provider. You're a sheep.
What if they decide to stop offering that service? What if you decide to use something else in the future? What if they jack the price up?
In many respects, this is why I think many of the robo-advice sites being launched left right and centre will ultimately fall flat, because they're absolutely, 1000% clones of each other. Why should someone use x, if another adviser down the road is offering exactly the same tool? To make one stand out from the other, you might be able to discount your bps, but you're cutting your legs off.
To get around this advisory firms should be investigating how they can build their own robo-advice offering that uses a more modular "plug and play" approach. Build the technology to compare funds yourself, but just plug in a feed from an investment platform, rather than buying their entire service. That way should you ever need to change the investment platform you're using, it's going to be a much smaller task. Equally, you then have a product that could, potentially, be worth something in the future.
After all, if you control the moving parts of the service you have free reign to make something a bit different. Something a little less sheepish.