Future of financial planning

Following the closure of robo advisor in UK, a financial planner Carolyn Gown writes about the future of financial planning. She remembers when ‘robo-advice’ first launched in the UK, to great fanfare. Investors would no longer have to pay a financial adviser to assist them with managing their money; it would all be taken care of by algorithms, at very low cost. At the time robo-advice was hailed as being a massive threat to financial advisers, the implication being that clients would abandon their advisers in droves, and those who might previously have sought their advice would now choose a digital offering instead. Well, robo-advice platforms have certainly lived up to their promise of providing a low cost investment platform and the use of technology to suggest an asset allocation to their users, but there’s little evidence to suggest they’ve fulfilled the ‘advice’ part of their offering to the satisfaction of their clients.

Most robo-advisers at launch provided no ‘advice’ in the sense in which those like Carolyn who do provide advice define it. There is no personal element to the process – the use of algorithms means you answer a series of questions and get allocated to a ‘box’ containing other people who answered the questions in the same way as you. But most of these algorithms only scratch the surface – no two people’s circumstances will be the same – so the price of lower costs often means accepting a cookie cutter solution.

The investing and advice landscape has changed, and many advisers have needed to up their game to demonstrate their value. But Carolyn thinks we’ve reached an interesting crossroads. She doesn’t see a bright future for robo-advisers in their present form. In her opinion, the future looks something like this:

1.     DIYers : There will always be a cohort of people prepared to educate themselves about financial planning and investing (and it’s not as if there isn’t an abundance of free information available online to help them), and who will have the discipline to go it alone. For this group, all they need is a low cost platform to hold their assets. (DIY = Do It Yourself)

2.     Financial coaching: This cohort doesn’t want to go it alone completely, but their circumstances are not complex. This group will use a mix of self-education and paid help. The help they will pay for will not be from a financial adviser. It will be provided by a financial coach who will assist them in determining their money values and their goals for a fixed hourly rate.

3.     Advice and hand holding: This cohort also doesn’t want to go it alone, and their situation is not necessarily complex. But this group lacks the time or inclination to deal with their finances themselves. This group will view their financial planning in the same way that they view their gym membership or Netflix subscription and will use a financial adviser to produce and implement their initial plan (for a fixed fee), and will pay a monthly retainer to be able to access their adviser whenever they need help. The retainer will also cover the costs of periodic reviews to update the financial plan and make sure everything is on track, making course corrections as and when needed. This is ‘financial planning lite’ but will still provide a very personalised service.

4.     Full service: This cohort has significant wealth and fairly complex circumstances. They do not want to go it alone and value a highly personalised, comprehensive financial planning and wealth management service. Their needs encompass inter-generational planning, business planning, philanthropy, decumulatio n strategies involving assets in multiple locations, tax planning etc. It will most likely involve a team of advisers – their lawyer, accountant and financial planner working in tandem.

With more and more of the planning and investment process capable of being automated, advisers now have the time to spend on the bit which adds the most value to their clients – interacting with them at a deep and very personal level. To Carolyn’s mind, it is options 2 & 3 above, which will be the biggest areas of growth in the future. Over time as these offerings develop further, she can see a proportion of people migrating from option 1 to option 2, or 1 to 3, if their situation changes and/or they cease to have the time or inclination to DIY. And she can see a migration from option 3 to 4 as people’s wealth grows and their needs become a bit more complex. The above looks to her like a personal finance landscape which will meet the majority of people’s needs at a reasonable cost.

I think the situation in India may not be very different. The need for a personal financial advisor is universal. Many of us have not even figured out where we currently are in terms of our need. We may be just delaying facing the inevitable hiring of a financial advisor.