Financial Advisory

Financial Advisory

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Expert: Bhavick Patel, Invesco Powershares & Ola Abdul, Fundment

Facilitator: Edward Wess, KPMG

General consensus: human capital is still the most important component of the financial adviser business, and the area towards which most expenditure goes.

Saying that, participants recognised the increasing importance of technology, and some indicated heavy expenditure in the area. One participant said his firm had invested ~£2m in developing a robo advice proposition.

Technology investment was on many participants’ minds, and one area of focus was increasing self-service capabilities. Making it easier for clients to interact digitally had paid dividends for a number of advisers, and in particular a few noted that “it’s worked to help us gain a younger client base,” many of whom were the children of existing clients.

Robo advice was far and away the area of tech investment which attracted the most interest amongst participants.

The general consensus was that the best value-add a robo proposition could deliver was lowering cost to serve for lower-value clients, freeing up advisers to spend more time with higher-value clients. A common theme was the desire to offer clients a panel of 2-3 robo advisors to choose from.

There were more questions than answers to what the best path forward was. Participants noted a number of barriers to adoption:

  • Product complexity: whilst some were already exploring offering robo propositions to support products like GIAs / ISAs, advisers noted that offering a robo proposition for pensions savings would be very challenging – “it’s hard to demonstrate suitability”
  • Meeting customer needs: there was a general sense that customers either wanted f2f advice or robo; offering both to distinct customer segments could add cost and complexity. It could also prove challenging to offer a consistent client experience
    • NB: BlackRock’s Global Investor Pulse Survey found that 50% of UK retail investors who would consider using robo would do so in addition to an advisor, not instead of one
  • Lack of track record: this was seen as a key barrier to early adoption. Interestingly, investment performance was not a widespread consideration here. Advisers wanted to see more info on level of complaints that robo advisers attracted. More importantly, they wanted sight of why clients were complaining.
    • Brand was discussed here – would I want to use the robo proposition of a leading investment provider, or “do we trust them?”
  • Compliance concerns: “I’m not worried about the advice gap, I’m worried about the compliance gap” – how do I demonstrate that the robo advice is the most suitable proposition?
    • Some noted concerns with how to proceed with guiding clients to the right proposition after a first f2f meeting: “at that point, how do I avoid the perception that I’ve given advice when X might be more appropriate?”
    • One adviser’s solution was an online screen before the first f2f meeting that would help inform a decision about what proposition to offer, whilst avoiding any indication of having given the client advice.
  • Insurer concerns: many participants noted that compliance concerns were not just a matter for advisers’ regulators, but also their PI insurers. Many advisers had discussed offering a robo proposition with their insurers, who were uncomfortable with the idea for the reasons listed above
    • IFAs will be unlikely to offer robo propositions if PI insurers aren’t willing to offer cover or unwilling to offer the cover at reasonable rates.

The FCA perspective: regulatory counsel was for advisers to ask themselves “if the advice given to a client was coming from a human being, would it be appropriate and how would you categorise it?”

It was also noted that the FCA was going to be doing some work around testing robo propositions to assess advice suitability (without giving those propositions a ‘stamp of approval’).

  • NB: FCA published guidance on robo advice propositions in September 2017: Streamlined advice and consolidated guidance
  • NB: FTAdviser discussion on how firms oversaw suitable client outcomes for robo propositions participating in Project Innovate, which could offer a path forward to IFAs considering robo. May wish to consider initially having qualified advisers oversee the dispensation of automated advice:
    • “In most cases, this has involved qualified financial advisers checking the automated advice outputs generated by the underlying algorithms. One sandbox test involved an experienced adviser being present when a consumer received automated advice. This enabled the adviser to check and, if necessary amend, recommendations before the advice was delivered to the client.”