Ghost in the machine

The idea of computers taking over from financial advisers is not as far-fetched as it might seem, says Ian McKenna, director of the Finance & Technology Research Centre

FinServ UK has long been one of the more interesting online industry forums, in many ways an early form of scale media. What it may lack in terms of the latest technology – it is still e-mail based – is more than made up for by the robustness of views exchanged. A good example of this was a recent string of mails about the different options available to advisers for research systems.

As part of this dialogue a number of correspondents suggested that we are not too far away from the stage where technology will be able to completely remove the need for human interaction in the advice process. Just a few years ago such suggestions would have been greeted with howls of derision and protestations that technology could never emulate the advice process. I know this from personal experience, having found the concept an easy way to stimulate a vigorous debate with advisers on many occasions in the past.

More recently however, I have found increasing numbers of advisers who are resigned to the fact that the onward march of technology is not going to stop and that financial services will not be immune from this. Those firms that recognise this are far better placed to plan their future and be part of the change, rather than be replaced by it.

Looking at technology being deployed in other industries it is easy to see how alternatives to human advice could emerge. One argument frequently used to defend the status quo is that technology could never pick up on nonverbal clues from investors. Perhaps ironically other parts of the insurance industry have in practice been at the forefront of implementing exactly the technology which can be applied to such challenges. The same voice pattern recognition systems that are today employed to identify potentially fraudulent claims could equally be deployed to identify when a consumer is giving the answers they think they should give to questions about their expectations or attitude to risk rather than articulating their true feelings.

I see independent advice as like an Audi Quattro – an invention of the 1980s that one can reminisce fondly about, but that is no longer a practical solution to everyday needs

Advances in facial and gesture recognition software, combined with an increased understanding of human behaviour have now reached the stage where it is more a case of when rather than if a system can be developed that is capable of understanding such clues.

Equally the same technology that is used to create highly complicated computer games is being developed as a front end to client management systems and combined with voice recognition and natural language speech software so that in reality we are probably less than a decade away from the launch of fully interactive cyber advice systems that will never want holidays, company cars or object to passing examinations.

Whilst these developments may mean the death of face to face advice in the individual sector, for the corporate and workplace market this presents an enormous opportunity. In practice few firms engage with individual members. For larger schemes the necessary level of resources make this impractical.

Increasingly I see independent advice as like an Audi Quattro – an invention of the 1980s that one can reminisce fondly about, but that is no longer a practical solution to everyday needs. The vast majority of 21st Century consumers, carrying the burden of student loans, expensive deposits for housing and high taxation, all of which their parents were spared, need simple, easy to understand automated solutions that can help them plan for their financial future without the need to pay for expensive face to face advice.

Whilst I would argue the concept of independence is past its sell by date, advice certainly is not. Advice businesses however need to decide if they are prepared to evolve and meet the challenges of delivering concise affordable advice to the millions who need help managing their finances. In practice this can never be addressed by traditional face to face advice, even if it were affordable there are simply not enough qualified advisers. The challenge to the adviser community as a whole, but particularly the corporate market, is will the current community of advice firms contract to become a niche service for the very wealthy or will it rise to the challenge of delivering innovative new solutions to meet consumer needs.

Firms who wish to take advantage of this market need to look past the tactical challenges of RDR and put in place a strategic approach for the future. It is clear that to accomplish this firms will need to achieve considerable increases in scale, or partner with those who can. The technology needed to deliver such services will not be cheap but the potential return on investment for those that can capitalise on these opportunities could be enormous