September 19, 2018

Robo-advice: what happens when you peak too early?

Robo-advice: what happens when you peak too early?

Robo-advice: what happens when you peak too early?

About a year ago we published a series of Trialogues titled ‘lots of robo, not much advice’. Back then, despite the hype most robo providers were landing at ‘investment selection advice’ and going no further. It seemed only a few had made the foray into self-directed, strategic personal advice, and even then, none of these could provide an end-to-end proposition that included fulfilment and execution.

So where are we now? 12 months on, the closure of the UBS SmartWealth robo-advice offering in the UK after only being in market for less than two years has led us to ask whether these investment-only platforms have already peaked? And will we finally get to see a robo offer that provides end-to-end holistic personal advice?

Check out our update in the video or article below:

It’s safe to say the industry has moved away from launching digital investment selection offers every second week to a genuine focus on delivering self-directed strategic advice, but we still haven’t seen that end-to-end unicorn.

With the Royal Commission highlighting where things can go so wrong in the traditional face-to-face model, the concept of robo-advice is looking more attractive than ever. For institutions, it would understandably be far more compelling to offer consumers a consistently compliant, scalable, and auditable process that isn’t susceptible to human bias and error.

But this represents a quandary for the innovators developing these propositions. On the one hand, the appetite to link their advice to product is under pressure – there’s not such a great hurry to be the end-to-end unicorn anymore; but on the other hand, not doing so severely limits the commercial proposition.

What are the options for robo-advice providers?

SaaS – going down a Software as a Service route, robo strategic advice providers simply can’t afford to get to scale by pounding the pavement and going after self-licensed advice practices seeking strategic advice-only offers. In speaking to non-aligned advisers around the country for NMG’s Adviser Insights programme, we know these advisers are screaming out for a proposition that can help them target lower balance consumers at a much lower cost-to-serve. However, the effort for start-up providers to sign up these advisers one-by-one is simply not practical.

Employers as clients – thinking a bit more creatively, Map My Plan is an example of a provider who has successfully targeted employers – but there are a limited number of large employers in Australia with the means to sponsor financial wellbeing programs for their employees. With most Australians being employed by SMEs, our view is that only a few propositions, if not just one, are likely to be successful in pursuing this space.

Not for profits – what about industry super funds? The challenge with targeting them is their appetite to face into the issues that come with vertical integration and providing inhouse comprehensive personal advice. Many funds have a genuine belief in the benefits that personal advice can provide their members, particularly for retirement outcomes. If they can work through the quantification of those benefits in a world reliant on financial business cases, there could be a big opportunity here. In the meantime, inertia reigns supreme and robo looks set to be limited to intrafund advice for a while yet.

Which leaves us with the institutionally-owned advice licensees as the most likely channel for robo strategic advice offers to get to scale (or perhaps a buyout!). In a world where they are having to redefine the value that they provide advisers and their clients, they are looking for capabilities that can lower advisers’ cost-to-serve and help them target client segments they couldn’t or wouldn’t service before, and to do so in a risk-controlled, repeatable way.

Reg tech and robo-advice to come together

So even though capabilities and user experiences are maturing quickly, the distribution challenges that might prevent the next generation of robo-advice from going mainstream are as significant as ever. But with the Royal Commission likely to add to compliance burdens and therefore increase advisers’ cost-to-serve, there is even more pressure for technology to make a break-through, and therein lies the opportunity. Rather than maintaining a distinct difference between robo-advice and ‘reg tech’ that is specifically geared towards easing compliance burdens, if propositions can successfully combine the two, that might just break the inertia this emergent part of the industry appears to be facing. This means more than just providing automated advice within your platform that is compliant and auditable, and thinking about how that automation can extend beyond your platform across all aspects of an adviser’s business. But more on reg tech another time.

Ultimately, it would be a cruel irony if the consequence of the Commission would be to make advice even less affordable and further widen Australia’s advice gap – consumers need robo-advice to live up to the hype.

Where to now?

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