The robots are coming. But that’s ok because they may be less Terminator and more Baymax! (I won’t explain Terminator but for anyone who hasn't watched Big Hero 6 with their kids, Baymax is a robot who can only help!)
At our automation seminar this week we witnessed some interesting poll results. Although a relatively low percentage of advisers had automated approaches to fact-finding and client reviews today, most were open to exploring the technology for the future. But that’s not the interesting find.
When asked what advisers would use technology for in the future only 6% felt it was going to help win new business but 80% felt it would enhance or improve service to existing clients. And this flies in the face of much of the commentary around the importance of robo-advice and digital onboarding of new clients.
The panel discussion highlighted that it was only once trust between adviser and client had been established that technology came to the fore, and only then for supporting face to face interactions rather than replacing them. The preferred use of technology was for data gathering and investment implementation, reducing admin time and letting the adviser spend time with their clients.
This makes complete sense from an operational point of view - there are areas of every business that could do with some improvement and it’s on the areas that give the most immediate impact that many people are focusing their efforts. While smoother onboarding or an automated advice system is a great tool to have, the benefits may not be as immediately felt as processes that support or enhance the service given to existing clients.
Reading this might tempt a tried and tested response about next-gen wealth and if that's the case, I would challenge you to think again
So if investments are being made to improve service to existing clients, what about investments to win new clients? One could argue that improving client satisfaction, giving advisers more time to do their jobs and generally being more efficient may well serve the purpose of making the business more attractive to new clients, indeed many advisers cite referrals as the main areas of new business. The downside is they are often similar in nature and in advice needs to the person referring them. This might mean that as the client base ages each new referral comes with a shrinking total net worth rather than a growing net worth and that is not a good trend for business longevity. Reading that might tempt a tried and tested response about next-gen wealth and the intergenerational wall of money and if that is the case I would challenge you to think again.
We all become our parents
There are two dominant behavioural cycles that I have seen in the industry, in my peers and in myself which I believe need more than simple technology to break.
The first cycle may look property-dominated and as such some may point to next-gens’ interest in investing in life experiences over assets but, like a mortgage, investing in true life experiences requires steady and continual investment. The cycle is as follows; we leave education with no assets and often debt, we get a job and enjoy life, we fall in love and save for the future (deposit or life experience), we spend that initial investment which either triggers mortgage and long term debt, or we break from the 9-5 to live our life experience decumulating the assets we have gathered. The traditional cycle sees growth in family and expenditure for some years until steadily the debt is repaid and assets start to accumulate, the life experience seekers invariably chase another experience or drift into the traditional cycle. At some point, probably in our 50’s, the followers of the traditional cycle have little to no debt and have accumulated assets through employee-based retirement provision and the life experience seekers are slowing down and craving greater stability even if it’s just a base to launch another adventure.
There are two dominant behavioural cycles which need more than simple technology to break
What of the wall of money? Assuming two parents, an enjoyable retirement, ever-increasing longevity and a few years in residential care the wall is likely to be later and smaller and unlikely to disrupt the cycle above, those on the traditional cycle will still buy property and will likely still use debt to make the forever home, the experience seekers may upgrade the quality or duration of the experience, the lucky few might take elements of both and the 1%’s may invest.
After that downer, it's time to introduce the second cycle. This has less industry evidence than the first but I've keenly observed it over the last decade. This cycle is the inverse correlation of tech skills and wealth as age progresses. Under 20, maybe 25, tech adoption is rapid and easy but you have little to no wealth. I remember mocking my parent's inability to program the timer on the video recorder and doing it for them for pocket money. Now it's my children stating deep embarrassment at my slow pace using a smartphone and offering to create multiple shortcuts in return for payment. But as they hit their 30’s their tech skills like their music taste will stall (check your Spotify playlist if you don't believe me) and they will spend the next 20 yrs feeling comfortable with what they know, learning some new things but never being the first mover. (If you have kids this period will be one of huge frustration to them because you will have the means to buy new tech, you just won't be able to use it - all the gear and no idea!) You will reach the last stage of this cycle, with more money than at any stage but with only the limited tech skills you adopted in stage 2 and as a result, you are most likely to value steady-paced human interaction more than fast-paced tech.
The next-generation will probably be ok with financial advice via Snapchat but may not understand whatever comes next
These two cycles are not independent of each other, but rather run concurrently. In short, you get old, get rich(er) and can’t use new technology. But we’re not quite our parents. The technological ineptitude faced by consecutive generations will be at a rising level. Whereas our parents struggled with the video recorder, this generation struggles to understand the point of snapchat. The next generation will probably be completely ok with (or even want) financial advice via snapchat but may not understand whatever comes next.
What this means is that new technology will inevitably find its way into wealth management but not at the expense of human interaction, the technology part of this hybrid model will become ever more advanced but lots will need to change if it is to replace a human.
From the results of our survey, we can see that the most impactful wealth technology will be those systems that support the high net worth individual in a hybrid of tech and human, where trust in tech follows trust in the human.
