Marc Westlake, Managing Director, PortfolioMetrix Ireland and qualified independent financial planning specialist gives his views on the technology challenge facing the financial advice industry.
There is a buzz in the advisory community right now about the threat posed by robo-advice to financial advice businesses. The march of technology has always posed a challenge to existing orders since the time of the Luddites. But rather than being viewed as a threat, perhaps now is the time for advisers to turn bionic.
The concept of the bionic adviser is something that is gaining traction among forward-looking firms. Earlier this year the UK-based adviser business, LEBC, which has 14 branches across the UK and around 80 regulated advisers, announced it was rolling out a national ‘bionic advice’ service, combining human and automated services.
I remember when I first started out as an adviser in the early 1990s telephoning fund managers to place orders for unit trusts, posting a client's cheque and then a few days later a contract note would arrive in the post.
If I wanted to work out what the investment was worth in the future, I'd have to wade through pages of unit trust prices in the Financial Times and find the contract note in the client file. Not very efficient…but clients were making money so job done, right?
Then along came Excel and I was able to track multiple portfolios and produce graphs and so on. But it was still very manual, time consuming and prone to errors as my spreadsheet didn't plug directly into the bank's CRM.
Then one day I was mulling over the question how much use was it anyway to track the value of a client's portfolio unless we actually knew why they were investing.
In almost all cases clients were either investing for "income" or "capital growth" and when asked; "how much?" the answer was typically; "as much as I can get".
What did that really mean? I have always used the phrase "there are no prizes for being the richest person in the graveyard" - surely clients must have more specific objectives than simply accumulating as much wealth as possible?
The problem with simply tracking the value of your portfolio is that in isolation it lacks context. So what if a portfolio goes up and down in value if you don't know how much you need in the first place?
I concluded that clients would always anchor their "needs" to the value of their portfolio at any given time, so the question "how much do you need to have in your current account" was almost always the amount on the current statement. Obviously, this wasn't really the case but I lacked an alternative to present.
I needed a way to join up the process of investing a client's money with something that gave meaning to the process beyond simply obtaining the "best return".
That's when I discovered goals-based financial planning. The idea that the job of an adviser was really to have a meaningful conversation with their clients about the life they wanted to lead. In other words, how they would use their money to fulfil their life goals.
Aside from helping clients make money, the real value of using a human adviser, as opposed to an automated computer programme, is his or her ability to get under the skin of what their clients’ need and want from life and having the tools to turn those dreams into a working plan.
Unless an adviser does this then frankly any investment portfolio is good enough, like Alice in Wonderland, "if you don't know where you are going then any road will do".
However, spending more time with clients on the planning stage is uneconomical if an adviser has to spend long hours turning the plan into reality, particularly as clients are often looking for the most cost-effective route to long-term financial security.
This is where the bionic bit kicks in. There is some stunning technology out there that can revolutionise the financial planning process. Technology that gives advisers automated tools to really understand their clients, assist them in mapping out their long-term lifestyle objectives, illustrate future scenarios using a cash-flow graph and map the client's investment preferences to their portfolio to produce a personalised investment experience are much better positioned for the future.
There is also technology that removes the time-intensive and sometimes unreliable manual processes of making clients the money they desire. Advisers who embrace the robots and work with people and processes that can streamline their businesses are the ones who will reap the rewards and have nothing to fear from automated robo-advice routes that cut out the personal advice element.
Real financial planning today is much greater than the sum of all its parts. We have the technology to rebuild our businesses – welcome to the bionic age.