Automated advice and IFAs – evolve or sell for less?

Automated advice and IFAs – evolve or sell for less?

Space Money Talks has joined with Digital Wealth Insights to debate and discuss the issue of financial advice on 7th February. Register here to join us – spaces are going fast.

We have also put together a series of videos to provoke some discussion before the debate. There are strong views across the market.

Advisers who embrace digital may sell for more

DWI’s founder Ian McKenna believes that advisers sit up and take notice. He says that advisers who embrace automation will sell for more and that has to be a very big concern for advisers looking for an exit now or at some as yet unspecified date in the future.

Mr McKenna speaking to journalist and debate host John Lappin, says: “Advisers are in a better position than they have ever been. Their business model is more robust and there is an unparalleled demand for their services. Yet it is also important for advisers to look to their own future. Advice businesses that have made good use of technology, implementing it across their businesses and particularly those that have put in place digital communications mechanisms with clients can sell for considerably more than firms that are purely based on paper records.

We will be asking Ian and the advisers on our panel to discuss this further including the risk that if advisers remain totally ‘human’ based, sell on prices could fall.

When it comes to the day to day business of servicing clients, Ian says advisers also need to be aware of the increasing digital demands of their client group.

“There is significant evidence that wealthy consumers tend to be early adopters of technology. When you look at the demographics of the consumers who embrace accessing information about their savings and investments online, it is actually those in their 50s and their 60s who use those services more than anyone else.”

 

Analogue advisers may lose clients

Adding to these concerns, another of our panellists, Plan Money director Peter Chadborn says some clients could leave IFAs who can’t service them digitally to seek out those who can.

However he does not accept that advisers face extinction. He feels that younger advisers tend to have younger clients and are therefore better able to match their demands for digital. But his overall message is not to be complacent.

“The revolution word is overused; it is an evolution in terms of robo-advice. It has been coming and will grow so advisers shouldn’t rest on their laurels, though it depends on the demographic of the client. Some of our clients will resist even online banking, but others are going to the other extreme and may deselect an IFA firm, because they are not offering the online engagement and activity they are looking for.”

 

Cost of acquisition may hurt standalone digital start ups

There is some cynicism in the market about new digital advice start ups and one fund manager, who earlier in the year ran a rule over the market, is doubtful whether many can last the course.

SCM Direct founder Alan Miller says: “New robo-advice companies are small and sub scale and the costs are high. They don’t look to be structured efficiently; they have a number of quite highly paid people. We found, using conservative assumptions, that it would take 11 years to break even. We think it could even be 15 or 20 years and the average investor isn’t going to stay that long.

“These companies are targeting Millennials but Millennials have less money to invest. If someone invests £15,000 and they charge 0.4% which might be a typical fee, after admin and custody costs that is £60. The costs simply do not work. It is only large companies using their brand and their existing client base that can get round this problem. The smaller businesses need to target a different group.

“The costs of digital have been going up: the conversion rate of people buying is going down. No matter how many clever search engine optimisers they have – these are the basics. They are competing with huge brand names and they are competing with the fact that most investing is done via advisers or the big fund supermarkets. I am not saying it’s impossible but most of them will go bust. There may be automated advisers but they are more likely to be a larger companies.”

 

To hear more on these issues, please come along to our Space Money Talks debate on 7th February “Financial Advice in Digital World”. Register here for the last few spaces.

 

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