Research You Can Use: February 2019

Feb 27, 2019

The effect of robo-advice on the financial services community--and particularly financial advisers--looms large although there is little research at this point (ADISA is currently pursuing quantitative research on this issue). A 2018 qualitative study at the London-based graduate school of Loughborough University began in earnest looking at the effects of robo-advice on financial advisers in the UK[1].

The researchers inserted themselves into a wealth management firm which serves as an umbrella to solo advisers, medium-size advice firms, and advisers in the larger home office. The human advisers varied in their use of information technology to assist in advice process. No matter the level of technology involvement, the authors found the differentiation of the human element to be key: "it's all about trust and relationship and that's easiest to generate face-to-face.”

Further, the research looked at the core service encounter of financial advice and described it this way:
Financial Serivce Client Experience
Pre-Core Financial Service Encounter Core Financial Service Encounter Post-Core Financial Service Encounter
  • Initial communication with client
  • First fact-to-face meeting -- empathy/trust
  • Onboarding clients
  • Establishing client needs face-to-face -- probing
  • Servicing client needs:
    • ‚Äčreassurance/empathy
    • reviewing financial circumstances
  • Information processing
  • Bespoke communication
Even though the human softer skills were judged imperative to the empathy/trust dynamic, especially in the pre-core and core encounter phases, advisers noted:

If we’re charging a fee then we have to be giving advice. We can’t ask the client what do you want to choose, we have to give advice.”

Although more quantitative research is just getting started on human vs. robo-advice performance results, it is probable that even the softest human skill elements will be augmented by the use of robo-advice. True, commoditized robo-advice at the lower net worth end is a sure bet to grow (perhaps to be diminished by some large scale nefarious event that will probably occur at some point—dampening the enthusiasm), it is unclear how much of human financial advice is to be governed by generational, cultural, and improved artificial intelligence influences. Research on those elements, we hope, will help advisers prepare and adjust in order to serve clients well into the future.
[1] Coombs, C. and Redman, A., 2018. The impact of robo-advice on financial advisers: a qualitative case study. Academy for Information Systems.