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What will financial planning look like in 15 years time?

The entry of robo-advisors into the market is just the first step.

The recent FPI Convention was dominated by one concern, robo-advice. It is interesting that it has taken such a long time for the realisation that technology can disrupt financial advisory services to register. But register it did. 

South Africa’s financial services industry is not immune to the technology revolution, albeit the industry has been slow to acknowledge it. The entry of robo-advisors into the market is just the first step. Interestingly, no large, long-established financial services firm present at the FPI Convention was willing to acknowledge this. It took small firms to lead the way in telling the truth. 

So what is that truth? 

Indisputably, the current generation of savers, 50-plus year olds reared on the “human touch” service proposition, is unlikely to swap to using digital advice. They have been brought up on the reassurance of being told what to do by a person sitting across the table from them. They derive great comfort from being in the hands of people they view as professionals. They firmly believe that financial planning and product provision is an extremely complex field best left to experts.

By cloaking itself in a combination of complexity and obfuscation, supported by advertising professing almost-mystical wisdom, expertise and skill, the financial services industry has fostered exactly that dependency – a lack of transparency, unnecessary product complexity and made-up jargon have turned what is actually a fairly simple proposition into a perceived terrifying minefield of decisions which could make the difference between prosperity and destitution.

The good news for financial advisors is that this dependency is unlikely to change for the current “asset-rich” generation of savers. Apart from the prevailing mindset, the technology itself is not yet ready. 

However, the new generation of savers is very different. They are being brought up on mobile connectivity, social networks, online shopping, DIY knowledge acquisition and instant push-of-a-button gratification. They are fearless, more educated, tech-savvy and much less human-touch dependent. They are also more used to making decisions (all those computer games teach that early on).

This generational shift will shape the future of savings and investments, as well as financial advice. Super-margins in the world of internet transparency and social connectivity are unlikely to be maintained. Transparency and connectivity will expose fees, educate the consumer and simplify what is actually a very simple linear world made complex by the vested interests of financial services companies.

Supported by digital advice, the human-based financial advisory world is ultimately going to disappear. As much as it is an unwelcomed message for some, I will repeat what I said at the FPI Convention – “If you are in your late twenties or early thirties and are intent on pursuing financial planning advice as a career choice, reconsider your options.” This applies as much to independent financial advisors as to tied agents of insurance companies.

Let’s consider the future in 15 years’ time. By that time the average, affordable laptop is expected to pass the Turing test, a point at which a machine is able to exhibit intelligent behavior equivalent to, and indistinguishable from, that of a human. 

Once that happens, and together with other advancements in artificial intelligence and virtual personal assistants, or “chatbots”, this will enable a person to interact with a computer as they would with a human, asking any questions they wish and receiving accurate answers. Combine that with instant access to financial products and there is absolutely no reason for actual human interaction. Advice will become an online tool only. Mobile applications will support micro-investing where it does not matter how little you have to save. Other fintech innovations, including blockchains and smart contracts, will make transacting instant and cheap.

Even in their current “unsophisticated” form, robo-advisors already offer simplicity, convenience and affordability. A robo-advisor does not care about how much money you make or how you make it, what you look like, where you live or what your financial prospects look like. It does not need you to set up an appointment. It is available 24/7 to suit your timetable. There is something really appealing about that, particularly when combined with low fees. 

The current generation of robo-advisors provides us with a glimpse of the future. They merely hint at the possibilities. If you are a 50-plus year old financial advisor, you can afford to ignore this article in its entirety. If you are younger, you do so at your peril. 

Magda Wierzycka is CEO of Sygnia Asset Management

This content is sponsored by Sygnia.

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Most of this article is nonsense. Before anyone takes any of this in, bear in mind who’s written the article and what her agenda is. Be aware too that the “advice” you get from robo-advisors is not “best advice” but rather what’s best for the business behind the advice. Note also that if you’re paying lower fees for lower quality investment products, well, you’re losing big time!

As for the 20- and 30-somethings considering a career in financial planning/advice, the industry is becoming more professional and the rewards are certainly there for those who work hard and do the right things for their clients. What the industry needs above all else is much better regulation and protection for consumers. There shouldn’t be any conflicts of interest anywhere – such as companies who have their own robo-advisors directing investors towards their own products, disguised as “advice”….

Spot on GreenJacket! The master of deception has spoken, Sygnia has fees that are not disclosed! Passive solutions with an active net priced FoHF allocation? Where is the fine print? Brokerage? Earned by? Spread margins? Etc etc.

The death of the financial advice industry as we know it? Not quite, yes a lot will change i.t.o. advice processes and hopefully it will become better to accurately address people’s needs. But from my own experience the real value of an adviser is simply to IMPLEMENT a plan and this is often over-looked. By nature people procrastinate, especially if they are about to part with their monies, even if it is for their own direct benefit. I think it is more likely that people will trust professionals to implement the plan than some magic software. Likewise, none of us would board a plane with no pilot present, even if we know most of the time the autopilot mode is actually doing the flying.

I concur with the lot of you who’ve left a comment thus far.

The truly funny thing is – have we not seen this with “Lehman Brothers” 4th largest investment bank who went broke practically over night. Reason being there were a faulty algorithm in the high frequency trading software they utilized.

Now I know the article merely talks about advisors but even so the programming can be screwed with or the it can merely malfunction. Who will be held liable then when millions of people whom took the advise lose their money over night? I don’t think an mere “use at own risk” sign will suffice for such a tragedy.

Don’t get me wrong I’m all for advances in technology, but really just use your brains.

End of comments.

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