The answer to the advice profession's $6 million question
I’m showing my age, I know, but one of my favourite TV shows a s a child was The Six Million Dollar Man, starring Lee Majors as former NASA astronaut Steve Austin. After a serious accident, Austin’s body was “rebuilt”, with “bionic” implants inserted in his legs, his right arm and left eye, to give him super-human strength, speed and vision. As well as being compulsive Saturday tea-time viewing, the show provided a fascinating glimpse of what life in the 21st century might be like.
Here we are, the future has arrived, and, as things have turned out, it seems we’ve skipped the bionic phase and gone straight to robots, which are helping to transform industries from healthcare to public safety, and from mining to manufacturing.
In investing, of course, we’ve seen the emergence of so-called robo-advisers, such as Betterment or Wealthfront in the US, and Nutmeg in the UK. I have no doubt that one day most people will invest this way, but progress has been slow. Money invested in robos is still a tiny fraction of total assets under management.
So, why hasn’t robo-advice taken hold more quickly? The biggest reason for me is that we still value human interaction far too much to embrace the robo model that enthusiastically. It’s a big deal to invest your life savings online, and no matter how impressive the service is, some people will always want the reassurance of another human being that they’re doing the right thing.
I was therefore encouraged to learn this week that Scalable Capital, a robo operating in the UK and Germany, has announced that it’s going to start offering advice to “wealthier clients” whose financial situations are more complex. Customers who want this added service will be able to book a session with a face-to-face adviser for a fixed fee of £200.
What Scalable is effectively doing, then, is providing a “bionic" solution, with human advisers delivering what robo technology can’t. And it’s not before time. Robo-advice has, until now, been a misnomer; most robo-advisers don’t give proper advice at all.
I’m a fan of Scalable. No, there are aspects of its offer that don’t appeal; for example, it uses a tactical overlay which, although it might encourage investors to stay the course when they otherwise wouldn’t, will probably produce slightly lower returns. Nevertheless, Scalable is a relatively cheap, user-friendly service which will serve most investors very well, especially now that it’s also giving advice. eVestor is another low-cost robo that offers advice to those who want it, and I expect it too will thrive for that same reason.
So what does this all this mean for traditional, face-to-face advice firms? How to fend off the threat of robos has, to continue the Steve Austin theme, become the advice profession’s six million dollar question. Doubtless many firms will interpret Scalable’s move as an ominous development. My own view, though, is different, and broadly in line with that expressed by Tom Ellis in his latest comment piece for Professional Adviser. This is what he says:
“If Scalable's higher wealth clients — also known as consumers with the level of wealth typical of an advised client — have been requesting a face-to-face service, it shows that the traditional advised client can be lured through a previously unconventional way: via online wealth manager services.
“Scalable's move is evidence that setting up a low-cost service for lower value clients can not only attract clients who will want face-to-face advice, but clients who can be catered for face-to-face profitably. Essentially, it confirms what early adopters of digital advice already knew: online investment management is a good way to secure clients.”
In short, forward-looking advice firms shouldn’t just sit back and watch the likes of Scalable encroach on their own territory; they should play the robos at their own game and start raiding theirs as well.
In fact it’s already happening, at least in the United States. Plancorp, for example, an evidence-based financial planning firm in St Louis, has announced a strategic partnership with Prumentum Group to develop what it calls “a direct-to-consumer hybrid-robo platform”. It’s only a matter of time before the larger advice firms in the rest of the world start to follow suit.
The adviser of the future might be neither human nor robot, but something in between.
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