Robo advice: not the droids UK consumers are looking for

With robots not just making our cars but soon to be driving them as well and artificial intelligence (AI) in the home capable of doing anything from switching on lights to ordering milk on command, it’s hard to deny the rise of automation.

Technology has been a great disruptor in a number of established industries, with upstarts such as Uber, Airbnb and Spotify upsetting business models from taxi companies and hoteliers to the music industry. So with robo advice already making waves in the US, is UK financial advice next in the firing line?

Yes… but not with current consumer mindsets.

The Financial Conduct Authority’s recent Financial Advice Market Review recommended financial advice should be easier to access and cheaper to receive. It followed the Citizens Advice Bureau’s findings in October 2015 that there were 5.4 million people in the UK who were willing to pay for financial advice but would only do so if it cost less. There were also 735,000 people who tried to access financial advice in 2014 but couldn’t due to lack of supply.

On paper, then, robo advice looks set to swoop in, scoop up these disaffected customers and solve a lot of these problems. Automation tends to result in lower costs and an algorithm, unlike a financial adviser, can crunch several clients’ numbers all at once, reducing the issue of strangled supply. With consumers apparently clamouring for cheaper and more easily accessible advice, this seems like a win for the machines.

Except for one tiny factor… most consumers don’t seem keen to use them.

Our survey says

In a recent Drewberry survey of 2,000 workers, the appetite for robo advice was almost non-existent among Brits, despite its big splash debut across the Pond. Britons expressed an overwhelming desire for face-to-face financial advice when questioned: 90.1% said that’d be one of their preferred methods of receiving advice. Meanwhile, just 5.7% said they’d let a robo adviser loose on their finances.

Even so-called millennials with their stereotyped umbilical attachment to the digital world took a dim view of robo advice. Just 8.7% of those aged 25-34, for instance, said they’d be interested in receiving financial advice from a robo adviser.

Technophobia doesn’t seem to be skewing results — Brits aged 18-44 all said they’d take financial advice via a video call over robo advice. Having a human face to put to the investment decisions being made on their behalf seemed to be the key issue, rather than a distrust of new technology and distribution methods.

The fact is, customers would simply rather trust their hard-earned cash to a person than offer it up into the arms of an anonymous algorithm.

Who are you calling simple?

As it stands, robo advice can only offer simple guidance to consumers. It can assess factors such as the funds they have to invest and their income, and cross reference their risk appetite with a solution that ticks that box.

While this would certainly help those seeking basic financial guidance and address the issue of people struggling to access it, it doesn’t help those in more complicated circumstances. Start throwing questions about tax planning for a pension pot or an estate at a robo adviser and you’re going to start smelling burning silicon.

As it stands, human advisers are still the only ‘being’ able to deal with the nuances of the tax and legislation surrounding investments, particularly in a minefield area such as pensions. They are better able to offer advice tailored to each individual consumer, and won’t show you the blue screen of death the second you ask a particularly tricky question.

Robo advisers can just about pick an investment vehicle and fund within a restricted setting for a vanilla case, but right now they can’t do much beyond that, and I don’t see that changing for a long time yet.

In any case, a robot certainly can’t offer the personal touch the vast majority of UK consumers seem to be craving.

Tom Conner is a director at Drewberry Insurance and Drewberry Wealth Management.