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VIEWPOINT: Digital advice − a magic wand?

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Research and Markets in their 2016 report Robo advice: revolution or evolution suggest that low-cost, automated investment advice is set to become the core of financial planning services, with a market potential of $19,5 trillion assets under management (AUM)

What does this mean? The growth will no doubt be exponential. In a 2016 report Deloitte estimated growth in AUM, supported by robo advisory services, of between $2,2 trillion and $3,7 trillion by 2020, growing to $16 trillion by 2025.

The proposal is that online portfolio solutions for clients be developed by automating advice, automating client interaction, and ultimately automating the investment allocation and rebalancing of portfolios using sophisticated algorithms.

Many still argue that the failure rate of start-ups is high due to overcrowding and established brands catching up by leveraging off their brand and tech spend. Many argue that the client uptake remains low and are sceptical about the value of AUMs. However, in its 2018 Top ten trends in wealth management Capgemini highlights that growing technologies such as artificial intelligence (AI), robotic process automation (RPA), application programming interfaces (API), and of course blockchain are enhancing the client experience and allowing wealth managers to focus on the human engagement. Cybersecurity is becoming more robust.

Customer experiences and solutions will become more personalised and flexible with these cognitive programs. Even complex issues will be resolved in real time. Investment decisions will be transacted in real time. Regulatory compliance will be managed in real time. And all this will be enhanced further by the benefits of scale that come with the use of technology.

The traditional models are changing, particularly in view of the focus on reducing costs and fees with the growth in low-cost passive investment and fee-based advice models. Now more than ever, the ability to reach the broader, underserviced market is improving. It is not just about the millennials either, for the affluent are becoming increasingly technology and financially literate.

In a world of client self-management, with its increasing speed of service, low cost, transparency, and the integration of technology into every facet of our lives, digital advice is here to stay.

We accept online banking, online shopping, online travel bookings, online taxi services, and online social engagement. It is part of our lives, and so will online wealth management become to an ever-increasing extent. The risks and conflicts are the same. The choice and decision is when to use technology and enjoy the benefits, and when to seek human interaction. Hybrid wealth management solutions will become part of our lives.

In summary

What are we looking to achieve? We need to decide how we want to use the technology right from the strategy stage, to investment implementation, transactional servicing, and reviews.

How will this integrate with our risk, estate and tax planning for example?

How robust is the technology and institution – can we trust the solutions and the governance? After all, not much is tangible in a screenshot of a portfolio.

Successful advisors will use technology to enhance the client experience.

We love the freedom of technology, and have embraced it in many other areas of our lives, but after all, we are human!

Wealth Advisor

Mike Lledo CA(SA) is an Independent Financial Services Consultant