Robo-advice can be an appropriate entry point for future clients and could help fill the advice gap but it also opens the market to the risk of systemic failure, Personal Finance Society (PFS) chief executive Keith Richards has warned.
Speaking at today's 'Robo Advice - Threat or Opportunity' conference, co-hosted by the PFS and the European Financial Planning Association, Richards (pictured) argued digital advice propositions and automation within financial services should not immediately be seen as a threat to the advice profession.
"Humans will always have a role to play in delivering a robust financial planning service to the customer", he said, before noting robo-advice should bring greater choice to consumers.
"There are many consumers who are reluctant or unable to engage with the professional financial advice market, given the perceived cost and question over value, or simply because of personal preference," he continued.
"In many cases, digital propositions will offer an appropriate entry point for consumers with basic needs, and we should encourage consumers who do not currently interact with the financial advice market to do so using a communications channel that suits their needs.
"The sooner they start to accumulate wealth, the more likely they are to become clients of professional financial planning."
Richards went on to suggest robo-advice could help fill the advice gap, as it should allow greater access to the savings, investment and protection markets and offered the opportunity to address less complex needs more cost-efficiently. "Not every consumer needs the extent of expertise advisers provide," he added.
'Algorithms can only go so far'
Robo-advice still has its limits, Richards cautioned, however, and advisers should be careful not see it as a 'one size fits all' solution. "Automation and technology will never replace humans in the financial planning process," he said. "Formulaic algorithms can only go so far.
"While they may offer solutions to basic savings and investment needs, each client will have their own unique personal and financial circumstances, which simply cannot be analysed and acted upon by a computer."
Richards also warned against the part robo-advice could play in mis-selling, explaining: "Given the strict criteria by which consumers will be funnelled into certain savings or investment products, reliance on formulaic algorithms opens the advice market to a risk of systemic failure.
"Mis-selling scandals of the past have generally been based on formulaic sales processes so it is important not to repeat history. The individual review and tailored recommendation process of financial advisers protects the market from systemic failure."
A third risk Richards highlighted stemmed not from the technology but its providers. "The mantra 'if you build it, they will come' does not always apply to technology-based solutions and there is always a risk some start-ups will underestimate the cost involved in driving customers to their respective propositions," he explained.
"The financial failure of robo-advice firms would lead to liability falling on the Financial Services Compensation Scheme and therefore impacting on the rest of the advice community."
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