Consumers are engaging with new digital banking providers for a range of reasons, from the perception that they are ironically more ‘human’ and ethical than the traditional banks, to simply wanting to find an easy and efficient way of managing their money. These digital financial consumers are also very interested in Open Banking and appreciate the benefits it can bring, with concerns about sharing their data being less of an issue.
Digitally minded with traditional values
When it comes to use of robo-advice, appeal varies and some more traditional views remain apparent among this digitally savvy segment of the population. We explored some of the preferences, barriers and perceptions of the different types of financial advice among our Fintech Beacon community to understand how and why attitudes vary. Our members include customers of digital only banks and robo-advice based investment services – around half of them use both types of products.
When asked whether it would be beneficial for them to take professional financial advice, most of our digital financial consumers acknowledge they would. This is also what we would expect to hear from the general consumer population. However, the expectations for this advice differs considerably among our digital users, particularly in terms of the acceptable channel. Unsurprisingly the initial expectation is that ‘professional advice’ is delivered by a person, but other channels would be considered.
Advice is a must for complex financial decisions
As we know, major life events drive the need for financial planning and for products perceived to be confusing, such as pensions and mortgages, specialist advice is favoured. Our digital financial consumers are no different, just perhaps more open to considering a remote or automated approach.
However, even among this audience who are comfortable with technology, many expect professional advice to be delivered on a one-to-one basis and would opt for face-to-face advice if they had the choice. Especially among older customers, where financial needs are becoming more complex so there is a preference to receive the advice in person, or via a telephone conversation as minimum.
“I have taken financial advice in the past, and would do so again if necessary. It is beneficial for specialist topics such as tax and inheritance planning, where their specialist knowledge is required. I prefer to take advice face-to-face, or by telephone.”
Male, 40-49, Starling Bank customer
Online interaction is the norm
As we would expect, for some of our digital financial consumers, there is a strong preference for online interaction or an app based advice service, primarily due to the convenience. They are comfortable managing existing banking and or investment services in this way, so it’s natural to interact with an adviser this same way. This digital advice is more acceptable where needs are fairly basic and many of our younger investors acknowledge their level of investment may not make them an attractive customer for advisers. Awareness of the cost of professional financial advice is also apparent and digital services are obviously the cheaper option.
“An app or online would be perfect for me as I’m always short on time. It would be handy to know areas where I waste money and ways to save/make my money work better for me.”
Female, 30-39, Plum customer
However, some of our older consumers are also open to using robo-advice for more significant decisions, such as retirement. The idea of ‘robo-advice’ delivered online or by an app is appealing, again due to convenience and speed.
“I think when it comes to retirement professional advice is essential…My preferred choice would be online followed by an app. [Robo-advice] would be the ideal thing for me. I would want to do my research on the company I chose.”
Male, 50-59, Atom customer
Can robo-advisers gain trust?
Despite general confidence in digital financial providers, the issue of trust remains an important consideration for both in person and automated advice. Like many financial consumers, initial background research into a provider and developing a relationship over a period of time are essential for building this trust – which is true for both remote and in-person relationships. Although these customers are already using a range of digital banking apps, there is often some concern about the security and trustworthiness of robo-advice based investment. Receiving actual advice on financial matters must be from a trusted source, so new digital providers need to build this trust, which starts from offering a reliable, effective and secure service.
“If I were to arrange something, it would definitely be a face-to-face meeting (I would probably want to take in paperwork etc) and I’d have to feel that I really trusted them before we could have a meaningful chat.”
Female 30-39, Moneyfarm customer
“I love apps and digital banking for day-to-day use but I think for financial advice I would prefer face-to-face interaction. But if it were from an app that I used regularly and trusted maybe that would be different.”
Female 21-29, Nutmeg and Moneybox customer
“I think that security is an issue. I would try automated services in a small way to begin with until I had built up my own trust with the systems.”
Male, 40-49, Revolut customer
Advantages of robo-advice
There is still a degree of scepticism surrounding the financial advice industry, specifically among those that do not currently have an adviser relationship. This is generated from the ‘pre-RDR’ world where advisers were perceived as hungry sales people, whose advice was influenced by the commission they received from the providers. This perception presents an opportunity for robo-advice providers. There is some recognition among our digital financial consumers that the use of automated solutions, particularly with regards to investment advice, removes any potential human bias that may exist with traditional advisers.
“I know that studies show that things like the stock market are a gamble and the idea that people have expertise is a bit of a fallacy. Automated things might take out human failures.”
Female, 21-29, Monzo customer
Robo-advice also has appeal for social reasons. The majority of financial advisers are male and over 50 years of age and, although this profile represents experience and knowledge for much of their target audience, it presents a barrier for many potential customers. Robo-advice has the potential to a deliver consistent, direct and unbiased service, without the social barriers which may deter consumers who could benefit from the advice.
“Automated advice, presuming it was correctly calibrated, could be much better here as robots shouldn’t be sexist or patronising, nor will they waste my time with ingratiating small talk or stress me out with ‘hard sell’ pitches”.
Female, 30-39, Nutmeg customer
Limitations of robo-advice
However, there is a strong awareness of the limitations of robo-advice. The main concern – and probably a justifiable concern – is that the advice offered would always be too generic.
“I think automated financial advisers like Nutmeg or Wealthify provide generic advice, which does not work for all individuals. If their advice can be customised to a very fine degree catering to each individual, it will be more useful.”
Male, 30-39, Atom and Wealthify customer
“Automated financial advice would be appropriate for things like recommending a portfolio based on criteria I specify, or finding a suitable insurance policy. A benefit would be finding investments or policies that I would not otherwise be aware of, saving time and effort. My concern would be that robo advice would not be able to factor in specific circumstances and nuances around tax, inheritance etc.”
Male, 40-49, Starling Bank customer
The advice offered from a professional adviser is perceived quite differently from the type of robo-advice offered through investment app like Moneybox. By some users it may not be seen as advice at all. But after all, it is very different. These apps may look at what you’re spending and automatically determine what should be invested. They may determine your risk profile and suggest a suitable portfolio of funds. However, they are not yet able to deliver the full financial planning that an adviser can offer, nor recommend what those approaching retirement should do with their DC pension pot, considering their individual circumstances.
A positive future
Robo-advice is some way from delivering fully tailored financial planning. But is this an issue? We have all heard of the ‘advice gap’ which has evolved post RDR, as financial advisers are generally only willing to service those with a significant level of wealth (typically at least £50k) and banks, in the main, are steering clear from offering advice. The fact remains that consumers, even those that are digitally savvy, are generally disengaged from making significant financial decisions. They want someone – or something – to tell them what they should do.
Robo-advice based apps are helping people make small but positive changes to their saving habits and providing a way to enable people to start investing. This can certainly only be a good thing and as technology and consumer confidence evolves, these initial robo-advice services are potentially paving the way for a future where everyone can access appropriate financial advice in a way that is best suited to their needs.
This research was conducted via IFF’s Fintech Beacon community and is based on findings from 20+ participants who took part in research activities between November 2017 and January 2018.
If you would like to discuss this topic in more detail or learn more about IFF’s research offering and financial services experience, please contact us:
Tel: 020 7250 3035