Perhaps you think it’s the young, but the young may not have the confidence to use a robo adviser, while an older person who has some experience may now feel competent enough to talk with the robot. Confidence counts - a caution not to design for the wrong audience. This example offers some insights along those lines - although it is about robo advice for investing, which also has the complicating factor that few young people have sufficient assets to make it work.
Zoe Garcia-Amaya has stated in her white paper that digitisation and automation will present advisers with new growth opportunities and will drive industry change. Garcia-Amaya elaborates that advisers will need to offer personalised services, digitise their value chain as well as ensuring that clients clearly understand the adviser’s value proposition to ensure continuous success. Click here to read more
The emphasis added is mine. Advisers often think of insurers offering these services, and assume competition with their core offer. But why shouldn't you offer a digital advice service?
There is a concern among regulators that robo advisers do not make their selection process clear to customers - so algorithmic advice may be biased, especially in those cases where there is a choice of product providers. There are several ways such sites can lead clients to believe that their choice is perhaps wider and the process fairer than it might be. One is simply the way the starting set of companies is selected - if you have a mid-market product and you want to favour that one then it is easy to only select products that are in some obvious way 'worse' - say more expensive or offering less cover. The manner in which you apply selection criteria can affect outcomes too. If you apply selection criteria in a series of 'rounds' where you eliminate products you can imagine that if you knock out, say, all the products that are more expensive first, then in the second round you may find it easy to win on a coverage criteria. Even considering criteria in a balanced scorecard can be gamed in some ways - such as the weighting applied to each factor. That is why the Financial Conduct Authority in the UK is interested in how robo-advice works, and in particular how they meet requirements to check suitability, but also other advice safety issues.
It is not just bias in sales that concerns us - it also happens in underwriting and probably in claims. Humans are prone to bias in favour of groups to which they belong, and by implication against the others. That can reinforce existing societal prejudices and make life harder - more expensive policies and more declined claims - for minorities. Is there hope? This article from Daniel Schreiber, CEO & Co-founder at Lemonade explains how he thinks an AI we may never understand can eliminate discrimination and bias in insurance. Of course, I note that he isn't talking about bias in insurer selection - Lemonade is a single insurer offer, not a marketplace.
Rupert Carlyon, Kōura founder has said since going live, they have given advice to 3,000 people through the company’s digital advice platform. They are looking to roll out new messaging to improve user experience and understanding of their products. Click here to read more
The internet is a great platform for data-rich financial services. Since its earliest days financial services (led by sharetrading) have been a leader in e-commerce. But there is a catch. It has always been difficult to convert a lot of interest into action. We can easily deliver data, calculators, and content - and still struggle to achieve connection, engagement, and action. This is the overarching problem with digital. It is worth working on, but it is hard.
In 2010 many new robo-advice tools started emerging in the financial services industry worldwide. This article outlines some of the pioneers, growing pains and emerging leaders, while this article explains how Kiwis are becoming more accepting of 'digital humans' and some of the services they offer.
This is a really important quote from the first piece, highlighting a nuance in digital-human hybrid service provision:
"...moving to ‘hybrid’ models,digital-first services that offer human advice when required. This, for us, is the key. It gives these firms the ability to serve their customers at a level they want and at a price point they are happy with. At times this price point will include a human interaction, others will simply demand a transactional-focused digital-only product."
Instead of asking 'can robo advisory become dominant?' perhaps we should be asking 'can primarily non digital services survive?' the question then becomes the extent to which digital services are present in your offer. If you are waiting for someone else to develop digital services for you, then you are going to be placed in the situation of merely accepting the role (and margin) that they envisage for you in the value chain.
Partners Life are holding a number of workshops around the country in November to launch their new software PLUME. PLUME means Partner Life Underwriting Management Engine - I think you can tell what it does. The system is aimed at streamlining advisers working experience with the insurer. Look out for links to insurers' digital application systems from Quotemonster in the documents tab - the place where you can still download the old fuddy duddy applications - or link to bright shiny new online tools like this one.
Click here to read more.
There is a connection between regulation, remediation of clients that may have received poor or insufficient advice, and digital advice process. Good digital services, either no-advice or advice can be a powerful way to resolve the challenges of meeting conduct expectations and allowing the remediation of past advice without requiring a lot of in-person meetings. That can help advice businesses that have not been able to get a client to engage in a face-to-face review meeting for years, and allow the cost-effective engagement with clients that may have received no advice. If you want to know how, I've been putting together a guide to the principles, so drop me a line.
Chanticleer, at the AFR, (in this post, but you'll need a subscription) suggest that this is the case, using AMP's experience as the base, and generalising from that. I disagree. AMP's situation is fundamentally that of a wealth company sharpening its focus on that business, exiting the life sector. Meanwhile, some specialist insurance companies appear to be having a great time. It is true that for others it is more mixed, but the digital revolution is well underway, as is the shift towards living benefits. Riding those trends is probably the key to a successful future - for clients, advisers, and insurers.
According to anew report issued by Russell Investments in Australia states that financial advisers add at least 4.4% or more every year to clients - and a total of about $560,000 better off overall. Rather than see this as another shot-fired in the 'active' versus 'passive' debate, I prefer to focus on the behavioural aspects that financial advisers bring to the relationship - that applies to risk management, to insurance, to home loans advice, and debt repayment, and holistic financial advice. Readers will know that I am made keen on technical aspects of our industry: policy comparison especially, but also financial performance, price, underwriting, and digital advice. All these matter, but the central territory for advice is helping clients change.
The study worked with a number of advisers from US, Canada and Australia for the past 20 years and identified five key areas of financial advice in the report: annual rebalancing, preventing behavioural mistakes, planning and additional wealth management services and tax-smart investing. Click here to read more.
The FMA has granted Pinnacle Life a digital advice exemption. Congratulations to Gillian Vaughan and her team, in particular Amy Cavanaugh who has been driving this project forward. From the media release:
General Manager Operations Amy Cavanaugh says the provision of digital advice will extend Pinnacle Life’s existing online service to customers, offering a flexible approach to personalised advice.
“We know our customers are busy people, so we thought about how we could provide advice in a flexible, personalised, easy-to-access way. The new digital advice platform we are developing will enable customers to make informed decisions about insurance through tailored, real-time digital advice, whenever and wherever they want it.
The Chatswood team has been privileged to be a part of this project. Our prior contributions to online processes have tended to be data services. This project is a further step forward as it has been for a personalised digital advice process. I would like to recognise Shaun Dowler, who provides data science consulting as part of our team has been particularly valuable in pushing ahead this work for Chatswood.
The announcement says that the service will be launched later this year.