Direct-to-client “robo-advice” has become a global buzz-word and encompasses a broad range of offerings. In certain circumstances, it fills a vacuum. The issue of access to advice is worrying as the cost of servicing clients has soared with regulation. Professional standards have been driven higher, but are leaving more ordinary South Africans stranded as advisers are forced to focus on fewer, higher-value clients. Robo-advice may be a force for good by filling this vacuum cost-effectively.

However, other direct-to-client models involve discrediting advisers, largely by illustrating the impact of fees on investment values over time. Disingenuously, the advocates of disintermediation fail to assign any value to advice whatsoever. I have worked with good advisers in various capacities for most of my career and worry about the impact of sensational marketing – we are in hazardous territory.

In my view, direct-to-client robo advice will never come close to achieving the heights that proponents suggest. Several years back, a couple of fledgling “robo” firms in the UK and US with direct-to-client business models were getting a lot of airtime and attracting eye-watering sums of private equity cash. We, as an investment management firm with a big investment in technology, were ideally placed to enter that market. We didn’t, for good reason.

Quite simply, I had – and still have – little conviction in business models that disintermediate good advisers. I found the self-congratulatory arguments of private equity investors who wrote the cheques naive. They stood to “lose their shorts” and would probably then throw good money after bad – these concerns were well-founded. Why the scepticism? Firstly, in my view, it’s a poor business model:

1) The robo “advice” models we investigated were simplistic, linear, unable to capture nuance and were too easy to replicate, offering no real barrier to entry; 2) these firms grossly underestimated the costs of acquiring clients and they would run out of cash before reaching critical mass; 3) the offerings were more likely to attract new money at the margin and would have little impact on converting the existing “stock” of wealth; 4) investment management is about trust and credentials. A basic range of multi-asset, passive portfolios was always going to have narrow appeal.

This all smacked of bleeding-edge rather than leading-edge. However, this misses the main point.

The idea that robo is a substitute for humans is flawed and goes to the heart of the role of the adviser. It reflects a limited appreciation of what good advisers actually do and what investors receive in return. An adviser’s knowledge of investments, tax and estate planning is simply a pre-requisite to play and is peripheral. Clients buy advisers because they can engage with them. People empathise with people – that’s why great advisers have high EQ, are intuitive and are better able to engender trust. Advisers are human. They are not immune to fear and harbour hope and aspirations. Trust starts with rapport.

But where are the actual rands and cents in this? As it happens, there are granite-hard reasons why clients should be willing to pay for advice. In my 25 years in investments, I am absolutely convinced that investor behaviour is overwhelmingly the biggest factor that drives long-term success, dwarfing fees and even moderate underperformance. It takes very little for investors to deviate from a strategy and most systematically overestimate their ability to sit on their hands.

Ill-timed interventions can be driven by fear, but also by an instinct to take matters “firmly in hand”. It is human nature to oversimplify things and the required action is seldom that obvious. By exiting markets after sustaining losses and only reinvesting after they have rebounded rubbishes all projections – these are big, hard hits that are difficult to recover from. This explains the enormous gap in the published performance of unit trusts and actual returns in the hands of investors – it is driven by investor behaviour and eclipses the cost of good advice. Advice is not just for dummies with a limited grasp of investments – it’s often clever professionals that need the most protection from themselves!

Humans have another critical advantage over machines. It’s the way we think and interact. We do things intuitively that are very hard for machines. Humans can extract subjective information from a client in a way that no machine ever can. Often investor needs are not well-articulated and need to be interrogated or inferred; hard facts need to be blended with preferences – it requires instinct, judgement and experience.

Technology and artificial intelligence is going to change the world and we haven’t even begun to quantify the full social impact. However, I feel that good advisers have almost the least to fear. Every good adviser should be thinking, “Which bits of what I do could a machine do better?” Then they should focus on the other bits.