Alokik spoke at the annual BT UK Study Tour which brings together Australian financial advisors across a two-day (virtual) event to provide an update on the UK market.
The main topic was on the future role of advisors and some snippets from the discussion are below:
Open banking, which was introduced in the UK in 2016, is one important initiative that will drive changes in financial advice. The regime gives consumers more control over their financial data and is intended to drive competition in financial services. Innovative technology for financial advice is, however, still in its nascency in the UK. Alokik Advani, Managing Partner, Fidelity [International] Strategic Ventures, acknowledged there’s an opportunity for technology to streamline the way advice is delivered. “The way advice is provided it still a human-led proposition. You go in and speak to somebody, bring in your different, disparate sources of information and then you’re provided with a very large document with recommendations across the investing value chain. Millennials don’t want to engage in that manner so the entire engagement model needs to change.” One of the main challenges technology needs to address is customising products at scale. “It’s really easy to create bespoke products for high-net-worth clients. But to do it at scale is difficult,” Advani noted.
Using scale to drive efficiencies was a major discussion point…“Scale is 100 per cent achievable if you’ve got the right structures and efficiencies, but it’s not the solution. Sometimes acquisitions allow you to hide inefficiencies because you create the illusion of scale at a headline number in terms of assets and clients, but you can still have a lot of mice on wheels in the background that are furiously pedalling away to keep the engines moving.”
The role of robo advice
Robo advice was a controversial topic. One question is whether mid- to large-scale incumbent financial advice firms in the UK can expand their operations into a digital market, in pursuit of younger, digital-native clients who expect the technology their financial advisers use to match the other technology in their lives. A growing number of affluent clients may take up new entrants’ mass-market, digital solutions over time. But there will always be room for a range of different offerings in the market, servicing a broad range of client groups. High demand for advice generally also suggests there is room in the market for a number of different advice models, including digital and face-to-face. Despite its efficiency advantages, Advani argued the widespread rollout of robo advice has been difficult. “I don’t think it’s succeeded at scale. Customer acquisition is a big issue. If it costs you hundreds of pounds to acquire a customer, but you can only charge 40 basis points on assets-under management of as little as $ 10,000, it’s going to take a long time to recoup that initial investment. So monetising robo needs to be reconsidered.”
Overall, while the financial advice sector is moving in the right direction, much work needs to be done before open banking’s stated aim of true information portability comes to fruition. Getting incentives right and proper structures around sharing third party investment data and switching costs need to be resolved before consumers can easily switch from advisers or between a hybrid or robo advisor model, in the same way consumers can now easily switch between telcos and still use the same phone number.
Ultimately, appropriate use of technology is all about getting the balance right between automating some aspects of advice, making the client journey simpler and at the same time maintaining service with some element of face-to-face contact.