Automation in the world of financial advice

Overview:

With some of the Big 4 announcing a shift to automated advice services in the interest of budgetary measures, it raises questions about how tailored you can expect financial advice to be. We look at striking the right balance between technology and bespoke customer service and how we deliver the best of both to our customers.

Calling a spade a spade

When Westpac CEO Brian Hartzer announced earlier this year that the bank would be closing its specialised financial advice division and shifting to an automated model designed to supply more general advice to a larger number of customers, there were more than a few eyebrows raised across the financial services industry.

According to Mr Hartzer, the decision was resultant of a dual squeeze on profitability due to lower revenues and increased compliance costs stemming from the Financial Services Royal Commission and the Future of Financial Advice reforms.

It signalled perhaps the first formal acknowledgement by one of the big four banks that providing bespoke financial advice to its customers is no longer viable, and the decision by Westpac to spend upwards of $300 million to restructure its business away from this model signals that it’s more than just a minor tremor in the market.

Importantly, it is a shift in the market that is not just limited to the big four banks. Prior to last Christmas, it was revealed that 20 Macquarie Group advisors had jumped ship to rival firms citing concerns with the Group’s restructured non-commission remuneration model and narrowed focus on wealthy clients.

It would appear the writing is on the wall for bespoke advice services embedded within larger financial institutions. Regulators have put the squeeze on vertically integrated business models that incentivise financial advisers to sell products offered by their own company, meaning that the advice services can no longer be subsidised by those sales, subsequently rendering the model redundant.

How much automation is too much?

It has also raised the spectre of the role technology will play in the future of financial advice. Specifically, we are seeing the emergence of robo advice – a highly automated system where investors plug their personal information, investment goals, time frames and risk appetite into an online platform to receive a recommended investment portfolio. While it isn’t the first player in the market to offer a robo advice service, Westpac’s move to this model provides substantial legitimacy to the concept and it should be expected that many other large players will soon follow.

As a cost-effective way to deliver a level of financial advice to a large number of investors, the robo advice model makes sense and it is well suited to new investors, young people and those who may not have the cash flow to access personalised advice.

But everyone is different, and most investors have goals, responsibilities and circumstances that go far beyond what can be accounted for through an automated advice platform. Ultimately, no amount of automation can replace the level of trust and individual understanding and guidance a personal financial adviser can bring. As is this case for many of our clients, investment advice is just one aspect of a person’s financial interests and there are often tax, compliance and accounting needs that cannot be managed through a plug-and-play online platform.

Technology as an enabler, not as a replacement

That’s not to discount the role of technology and it has a huge influence in the way that the modern financial adviser develops and prepares their recommendations and strategies for clients. Perks has long held the view that technology is a great enabler of the work our advisers do and understanding what new innovations are available in the financial space and how we can use them to benefit our clients is of paramount importance to our firm.

One such example is the emergence of artificial intelligence. It’s a term that I am sure everyone is familiar with by now; however, it is much more than just a buzzword. Artificial intelligence allows us to expediate traditionally labour-intensive tasks such as loan approvals or insurance applications, meaning that, in some cases, we can turn around an application within the same day as opposed to traditional processes that could often takes some weeks.

As some of our clients are already no doubt aware, another program we have underway is called Xeppo. A proprietary software system that has been developed by Perks, Xeppo is essentially a cloud solution that provides our clients with a real-time view of every aspect of their financial life. This kind of visibility is unprecedented and underlines the power of technology in delivering better outcomes for our clients.

So, are the robots taking over? Well, not really.

While robo advice is emerging as a new model to provide more people with greater access to investment opportunities, it certainly isn’t, nor should it be, for everyone. Our view is that by having the power of leading financial technology informing our decision making, we give our clients the confidence that we are up-to-date with the latest data, developments and information available.

Importantly, we still hold the view that our critical function is to build a relationship founded in trust and deliver sophisticated and well informed advice in a way that remains fundamentally human and relatable.

And that’s something which no robot can ever replace.