Deeper integration for robo-advice on the way

Robo-advice could reach its second iteration next year.


By Daniel Paperny

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Changing customer preferences and the speed of engagement were two of the fundamental catalysts behind a growing shift towards robo-advice, which was only in its first iteration, according to State Street Global Advisors (SSGA).

In an interview with financialobserver, SSGA head of SPDR exchange-traded funds Shaun Parkin said the dynamic nature of advice interactions had resulted in more clients turning towards digital advice offerings because of the advantages of a simplified client experience, lower fees and increased transparency.

Yet the current robo-advice offerings were often limited in their scope and were typically centred on the strategic asset allocation of investment portfolios, Parkin said.

“One of the criticisms of robo-advice today is that everyone gets the same constituency relative to the underlying bucket you’re put in [as an investor],” he said.

“Robo-advice is this umbrella terminology for anything that doesn’t look like regular classic advice and what a second iteration of that looks like … will be a lot more technical, [removing] a lot of the heavy lifting to the point where the advice piece is so refined it will come down to the individual level.”

A study conducted by Ernst and Young (EY) in May found consumer appetite for digital advice offerings was growing rapidly and that was shaping the nature of contemporary advice interactions.

EY’s “Global Wealth Management Report 2016”, which examined responses from over 2000 wealth management clients and 60 wealth managers globally, found strong evidence to suggest robo-advice was increasing its footprint in advice practices because it was proving increasingly popular with clients.

According to the report, as many as 59 per cent of financial advice clients noted a preference for digital offerings, compared with 35 per cent of wealth managers.

Parkin said that instead of having a general risk profile, the next wave of robo-advice offerings would be a lot more intelligent and intuitive, drawing on a variety of data feeds and sources to construct a much more comprehensive and detailed assessment of clients.

“We will see the ‘internet of things’ in advice … with so much data being collected now and the level of data that can be aligned to one individual, you can learn so much about [clients] through this amalgamation of [information] via Facebook, Spotify, Google and so on,” he said.

“The level of comfort that we have now with providing our bank details online, doing payments digitally and telling people where we’re travelling … I think it’s all heading in that direction where the end result may be that financial advice becomes part of that [fully integrated proposition].”

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