ANALYSIS: Nothing to fear from the ‘rise of robo-advice’

Added 14th September 2015

Journalists love conflict. It sells newspapers, gets people tuning in to radio and TV, and is the reason why we are so quick to frame something as a battle between two diametrically opposed sides.

ANALYSIS: Nothing to fear from the ‘rise of robo-advice’

But, while it is compelling storytelling, it is very seldom helpful – just look at the ongoing battle between active and passive investment management. It is a narrative that leaves little space for the co-existence of what are, in actual fact, complementary investment tools.

With this mistrust of the battle metaphor in mind, I have been reading with increasing trepidation stories about the rise of robo-advice and its potential to “Terminate” the financial adviser.

That is not to say there isn’t a battle coming (I am a journalist after all), or that there won’t be winners and losers. Rather, it is a concern that such a reading needlessly narrows our understanding of the seismic shifts not just occurring within the advisory space, but within the retail financial services world more broadly – especially when it comes to technology.

In many respects these shifts are more akin to a game of monopoly with multiple, co-dependent players, than an antagonistic game of chess.

A good example of this is last Friday’s announcement by Aberdeen that it has acquired Parmenion. As a rationale for the deal, Aberdeen said: “The acquisition is part of Aberdeen’s strategy to capitalise on advancements in financial technology systems and to become a leader in using technology to provide investors with portfolios appropriate to their needs, while also growing its investment solutions business.”

There is no doubt that Parmenion has the goods when it comes to financial technology. Its platform is well regarded, so from that point of view the deal is a good one. But, more importantly from an advisory point of view, the deal is a clear indication of the importance Aberdeen places on intermediated distribution.

Indeed, one could argue, as tied agents have disappeared and with the growth in execution-only brokers, model portfolio services and, most recently, robo-advice, much of the power has moved away from the product providers.

And unless one has a massive wholesale distribution network to fall back upon, it is understandable that Aberdeen would want to keep open as many options as possible when it comes to seeing how things shake out in terms of pension freedoms, regulations and the increasing concentration of buy lists. In that case, owning a platform, especially one active in and renowned for technological innovation is a rather attractive prospect as it keeps its toe firmly in the adviser market.

It is important to note, however, that this focus on adviser-led distribution goes hand in hand with a desire on the part of Aberdeen to bolster its technological capabilities. It is not one or the other, it needs to be both.

As Parmenion’s head of distribution, Richard Goodall said recently: “There is a lot of emotive language in the market at the moment when it comes to financial technology, which doesn’t lend itself to greater integration. Technology needs to be seen less as a threat to the industry and more as the next evolution of financial advice.”

And, one could argue this is slowly beginning to happen. As Towry’s COO, Dave Percy said with the announcement of its new online portal: “It’s undeniable that digital technologies are reshaping the way that consumers engage with their finances and that the industry must adapt to take advantage of this shift.”

As with any evolution there are going to be those species that don’t quite make it. But, at the same time new species will grow to fill in the gaps. In this instance, as many wealth managers and advisers have moved up the wealth spectrum as a result of cost and regulation, so a gap has opened up in the mass market that is now ever more in need of advice. A gap robo-advice is looking to fill. But, just because a gap is opening up, doesn’t mean all the other species have to die out. They just need to ensure they too continue to evolve.

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