Robo-advice and API/Analytic lead Personalization automation

You’re sitting down with your financial adviser and looking her right in the eye. Is she advising you? Or selling you?

All financial advisers, like doctors and lawyers, have a legal duty to put their clients’ interests first. Yet old habits are hard to change, with some continuing to sell expensive funds, over insurance or complicated annuities with hidden fees. Wouldn’t it be nice to know you were getting the best solution available!

And then there are the robots.

Robo-advisers” are computer programs that ask you questions online and implement a solution such as setting up an appropriately risk weighted investment portfolio for you. Unlike advisers they are programmed to meet their legal and fiduciary responsibilities to always put the clients’ interests first. The rise of  process robo-advice and the new breed of wealth manager who are Robo-advisers , is changing the landscape of the advisory and wealth management business and prompting many investors to question the way they obtain investment advice and how much they are willing to pay for such services.

Robo-advisers deliver consistency, constant monitoring, the ability to react in real-time to pre-set strategies, there is no dependency on quarterly or annual reports to identify an issue and implement a change.

An increasing number of investors — especially millennials — are well educated and have the skills and time to investigate alternatives. They have started looking at emerging technology that can  help manage their money.

The rise of a new breed of wealth manager — commonly referred to as a “robo-adviser” — is changing the landscape for Advisory businesses and prompting many investors to question the way they obtain investment advice and what they are willing to pay for such services.

It is not to say the investor does not want to interact with an adviser, however, the manner, frequency and topic for discussion is likely to change as a result of the increase access to information and analytical tools.

Overall, the advice market is growing and the value of advice is not going away, due to changing demographics, increased population and complexity in regulation and products.

Adviser’s average age is around 55, they generally lack the skills or desire to embrace a digital engagement model.  This reduces their attraction to the emerging advice user base i.e. 35~40. New wealth is being created at much younger age (“next gen”), particularly in the private wealth space, new engagement methods are needed to engage with this emerging market, especially given the opportunities to leverage the seismic wealth transfer from baby boomers to next gen, and tech tools that enhance the client experience and highlight the role of advice in the client relationship.

The landscape of the market is a fairly well-known and traveled terrain, but there are new elements emerging that may provide interesting new paths — including robo-advice models, equity and debt crowd-funding, the mainstreaming of alternatives, and other forces being driven by regulatory, technological, and general investment trends.

There has been and are challenges including higher compliance cost, to be able to provide quality personalised services to clients  essentially those who may  have significant financial resources  but are not ready or able to pay higher advisory fees. Here in Australia, the regulator ASIC, has recognised the emerging opportunities and challenges and has established a dedicated team called the Innovation Hub, to support this growing sector.

Financial Advisers can take advantage of technology to get “On the Right Side” of the robo-advice trend. Robo-advice tools combined with visual messaging can guide the client to seek expert advice from an adviser. Robo-advice can deliver on the “hard” aspects of the advice process i.e. calculate a result, improve efficiencies in administration, improve responsiveness to specified events, however, is less effective in responding to the “softer” aspects such as emotional, family, relationships and other personal matters that influence our decision and make us human.  “And that’s where —

Advisers will always have a role. Being able to absorb and react to these emotional and more complex matters will always be an adviser point of difference. This human-focused is highly valued as it adds provides a reality to the user, it provides comfort through understanding, guidance and security through reassurance. Ultimately, embracing a hybrid model that combines robo-advice and personal advice can provide improved satisfaction for advisers because they aren’t wasting time on the maintenance and implementation details that can be handled through the robo-advice process”.

Investing is personal, financial adviser need to tailor client’s goals and aspirations and balance these against their personality, risk appetite and risk tolerance by knowing the ins and outs of the things they care about most e.g. family, travel, charities,  goals, needs and wants and then priorities these to achieve a realistic achievable strategy.

A scalable and responsive strategy would be best achieved by establishing a hybrid model where technology enabled scaled advise tools combined with a human adviser/mentor to keep the advisory fees low.

Where robo-advice can help

  • Math, analytic, data processing
  • Speed, precision, accuracy, product matching and selection based on criteria
  • Consistency, coherence
  • Considering many variables concurrently in multi-dimensional space
  • Availability (always on, always working, always monitoring your investments)
  • Not biased (won’t give different advice depending on your gender, appearance, race, etc.)
  • Researched based – psychometric analysis, eliminate emotional influences, Not emotional
  • Inexpensive (near zero marginal cost)

The gaps of robo-advice, where real people (coaches and advisers) can help

  • Having a revealing conversation
  • Reading body language
  • Understanding social structure (family, friends, business)
  • Knowing when customers are lying
  • Considering variables they don’t know about
  • Talking on the phone
  • Seeming like they “care”

With the rise of the FinTech community, increased investment drive innovative solutions that are making wealth management as an increasingly commoditized business. Institutions need to set themselves apart by striving to offer their clients value above and beyond simple diversification and asset allocation, administration and reporting. The demand for trusted advice grows but confidence in the supply of trusted Advisers is being challenged and new alternatives are emerging.

This provides opportunities for the financial service industry to engage differently with their clients especially Banking (for example, Catching up with FinTech trend before being disruptedNew & Improved Personal finance management solutions including budgeting and cash-flow management, Account aggregation from multiple providers, Wisdom of crowd type of advisory, Integrated platform for consumer wealth needs and products including Insurance, Mortgage, Cash, Super, Investments, Retirement)  and  Super funds (for example, improved Member engagement in MySuper and educational and compliance based solutions in the popular Self-Managed Super Funds (SMSFs) areas e.g. selecting and managing diversifying investments. Considering there is $400 billion plus in the SMSF market, there is a clear requirement for better tools to support SMSF trustees and advisers).

Product design considerations

How do financial institutions leverage these opportunities and differentiate?

By creating a modern platform based on open architecture with integration and straight-through-processing capabilities. With sufficient scale this modern platform can surpass the performance and service standards currently provide and assist the organisation march up the value curve by adding:

  • Personalization & Predictive Analytic capabilities: Tailored to individual goals and aspirations: Leverage behavioural psychology principles and data clustering capabilities to predict what the consumer needs over time. Both past and present data can be used to create a uniquely personalized user experience that predicts future account activity and provides simple, actionable guidance. This needs to be fully automated and needs to be considered as part of business and technology product design and ‘Go to Market’ strategy.
  • Behavioral economics & Changing Financial Habits: “It’s very difficult to change the hard-wiring that we have,”. We often act based on habits and often make intuitive, immediate decisions based on our past experience. The obvious stuff really matters; making it easy, familiar, rewarding, beautiful, urgent, and feasible. Careful planning and considerations required for a behavioral change product design. Apps can project forward to show visually how financial decisions today affect the future. E.g. sticking to a budget or getting out of debt.

There is a great debate whether punishments and threat are effective at changing habit of people in general. However, it is accepted that it can drive a change. This physcological approach can be applied to and combined with robo-advice tools to support and drive change and eventually built good habits. One powerful example of this type of threat is commitment contract.

A Commitment contract function would enforce a certain goal/plan for clients.  For example, employs commitment contracts to generate creative, personal punishments, like automatically donating money to an NGO you hate if you fail to lose weight. Importantly, their punishments are self-imposed and self-calibrated; people choose their own punishment. We react much more negatively to externally imposed punishments than we do to self-imposed ones.

Similar concept can be possibly developed in an Australian financial context. For example, Once Agreed – if a client doesn’t stick to a plan, the system will transfer a certain amount to their super fund. Some people may argue this may act as a reward function instead of a penalty, irrespective it is aimed at linking a consequence to an inability to stick to a commitment, making the planning process more tangible.

  • Customer engagement framework:This involves the ability for consumers to be able to engage and access their data when, where and how they want. The opportunity is to create a low cost interface with higher engagement to serve low net worth clients efficiently  with the right advice, at the right time, in the right context and allow active involvement of clients in the decision-making process.

A customer engagement framework   should be designed focusing on creating habit forming experience leveraging cognitive science research, this techniques has been used by Twitter, Instagram, Pinterest, and other habit forming Apps to create hook cycles to bring users back repeatedly without advertising or aggressive offers.

  • Education: personalized self-learning content to educate the relevance of finance planning before even giving any investment advice. Bring analysis to life through content recommendations, personalization, search and other popular options for your readers. Leverage Analytic & API engine to understand client interest to specific type of content categories to increase promote investment offerings, including personalized. Learning about potential needs shapes the purchasing behavior of digitally oriented clients more than life events that create new needs.
  • Consistent Multi channel accessibility & experience: Introduce technology and processes which enable customers to be more involved and engaged with their finances, allowing access to their Adviser at a more appropriate frequency while optimizing and personalizing the experience.
  • Technology Platform: Cloud, Mobile, API, IOT & Analytic provides the right foundation. Financial institutions of all sizes often have incredibly complex, disparate systems – with no central data repository – which is further complicated by enormous security and regulatory requirements. Some of these solutions may require account aggregation functionality from multiple source systems to offer a single financial data view to the clients. It is also important to foster internal business alignment by directing stakeholder attention to business capabilities from API & Data assets.
  • Regulatory Compliance: Whilist regulatory compliance like FoFA is key and can be outsourced to Off the shelf advisory or core planning software based solution vendors, digital and customer engagement should be unique to each business and can not be replicated.
  • Identify role in value chain: Collaborate/complement in marketplace and establish the brand in digital ecosystem with open APIs.
  • Digital Marketing:  Online marketing and paid advertisements needs to be managed through an extensive network of affiliate sites and as part of search results on major search engines for customer acquisition and brand awareness. Marketing, content publishing needs to be well thought through, integrated and should work coherently. Understanding where consumers go to research and buy financial products, whether using the web, especially mobile. By understanding when and how they search, brands can meet consumers in all the moments that matter.

Finance Trends throughout the year from “Think with Google

From saving in January to spending in December, consumers have money on their minds year-round. To research and buy financial products, they’re using the web, especially mobile. By understanding when and how they search, brands can meet consumers in all the moments that matter.




Planning to launch a new financial product to the market?

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