Will the human-robo approach to wealth management become best practice? The rise of the human-robo approach in wealth management

Digital investment advice, commonly known as ‘robo-advice’, is reshaping the wealth management industry, writes Cheryl Nash

 The rise of the human-robo approach in wealth management

‘Wealth management firms are incorporating both digital advice and human advice to create a hybrid model, which is likely to become best practice in the industry’

Through sophisticated computer algorithms, firms can now deliver investment advice and administer portfolios to individual investors. Consumers are becoming more comfortable with this model as the use of advice driven by artificial intelligence (AI) gains ground in the industry.

According to the quarterly Fiserv “Expectations & Experiences: Borrowing and Wealth Management” survey conducted in June 2016, 49 per cent of consumers are interested in receiving financial advice from a robo-advisor.

However, there are limits to a robo-only approach. That is why we are witnessing an increase in wealth management firms that incorporate both digital advice and human advice to create a hybrid model, which is likely to become best practice in the industry.

The wealth management revolution

The wealth management industry has historically been focused on serving high-net worth individuals with deep pockets. However, as institutions adopt forward-looking digital strategies, building a portfolio no longer requires a large sum of money.

AI is now able to collect information and tailor investment advice to the individual in an efficient and cost-effective way, which helps make personalised investing much more accessible.

New entrants to the field are also emphasising education and implementing tactics to make investing less intimidating for beginners. GoldBean, for example, capitalises on familiarity by suggesting investments in brands the consumer already likes, knows and uses. Technology is able to interpret and action investor information and activities far more quickly than humans.

AI also adapts messaging according to the audience and provides the appropriate level of advice to the investor. It is this ability that can make AI valuable to the wealth management industry.

Trend toward a hybrid model

Hybrid models combine the benefits of robo-advice with the personal touch of an advisor. This model allows advisors to address the changing way investors communicate with them.

For example, customers can use an investor portal to open an account efficiently, enter risk tolerance, and have an investment policy statement setup automatically. Once they come to speak with an advisor, the required information has already been accurately collected facilitating a more meaningful goals-based conversation.

The hybrid model offers the best of both worlds and, with greater prevalence, is becoming a best practice in the industry. It allows investors to access wealth management digitally, with the confidence of a human advisor when needed.

Benefits of a hybrid-advice model

In an age of digitisation, being able to communicate with investors in the right way is crucial. Working with a traditional financial advisor can be intimidating and typically requires a significant amount of investible assets, which can serve as a high hurdle – particularly for beginning investors. With the rise of automated services and chatbots in-line with the hybrid model, these challenges are being mitigated.

Investors can now text or instant message their robo-advisor for free and can receive instantaneous advice in return. If, however, the situation requires a deeper level of consultation, a hybrid model affords access to on-demand human advice, perhaps through a predetermined number of inquiries as a feature of the selected service, or by pay per inquiry. Having a mixture of both enables that flexibility to provide customers with a service that suits their stage of investing.

Getting the balance right

While robo-advisors are an important tool, limitations become apparent around the more complex financial questions such as estate planning, stock options, determining the right home mortgage, or how to reduce tax liability. They cannot offer life guidance or provide reassurance during a market downturn. In this scenario, the hybrid model allows the investor to reach out to a human advisor for the more complex issues.

As financial institutions work through a great variety of new technologies that are increasingly becoming available, the industry is likely to see varying approaches taken as to how best to utilise them. No two customers are alike and each has unique priorities. Certain situations may require more of a human approach versus an automated one, and firms will need to gather data and feedback from their customers to determine the right mix.

Ultimately, there is no denying that the use of robo-advice will continue to grow in the wealth management industry as technology becomes even more sophisticated. A hybrid approach, one where traditional investment advice is combined with a compelling and personalised front-end user experience, will enhance the advisor-investor relationship and support firm growth.

Financial institutions that are able to establish the correct ratio for robo-advice versus human advice will be able to set themselves ahead of their competitors and deliver a seamless service to customers.


Cheryl Nash is president of investment services at Fiserv

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