AI - is it you or the algorithm?

Financial Advisory

Emily Landless

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Artificial intelligence is making rapid inroads into financial services. We are already seeing algorithms taking over the more basic levels of financial advice and they will increasingly be moving up the food-chain, from specific tasks, such as asset allocation, to fully-fledged turnkey solutions. How should client-facing firms adapt to the new model?


Vanguard’s view is that the future of the advice business will be more segmented than it is today, with different levels of advice, with different price points, to meet the needs of various clients.  They see the most likely segmentation as follows:

  • At the low-cost end of the advice spectrum, there are embedded advice solutions, such as Target Date Funds, where there is some generalised investment advice built into the product or service, but it is not a bespoke solution.
  • Next in line is ‘digital advice’ i.e. robo-advisers, where there is some degree of personalisation, but the relationship is entirely digital.
  • Moving up from ‘digital advice’ is the ‘digital relationship’, or hybrid-advice services where most of the advice is provided digitally, but with a human adviser available via videoconference, telephone, or other digital means.
  • Finally, there are ‘Wealth Managers’, which is highly bespoke, with a face-to-face relationship with a human adviser. This is most like the traditional advice models most advisers are using today.
  • It was also noted that algorithms are being increasingly used in the asset management world, for example with automatic rebalancing/hedging in volatility controlled funds.

Key issues and challenges:

  • It was suggested that, in general, Financial Advisers’ fees may be reasonably expected to decrease in the future but that margins can be maintained with the use of technology to reduce costs where possible.
  • The costs that should be maintained are those that support great client service.
  • The group agreed that there is some downward fee pressure from the regulators and from competitors.
  • It was also noted that technology has a role in reducing ‘back office’ costs, even within a bespoke, value-add ‘Wealth Management’ advisory firm.
  • There are 7 areas where a financial adviser can add value and 6 of them can now be done by an algorithm. However this is just the tool, the job still needs doings.

Conclusions and solutions:

  • There is evidence that the downward pressure on fees in some areas has subsided and this may reflect a segmentation of Financial Advisers with some aiming for low fees/high technology and others focusing on high value add client servicing.
  • There was general agreement in the session about these segments, with most of those present working for organisations that fit within the ‘Wealth Management’ segment.
  • Many agreed that the future is going to be Behavioural Coaching because is about trust and personal touch.

Expert: Garrett Harbron - Vanguard

Facilitator: Colette Dunn - Milliman UK