There’s been quite a few ‘column inches’ dedicated to the topic of robo-advice in the last few months.  We’ve seen a range of ‘experts’ telling us it’s the way of the future and that the wealth management industry as we know it will be under siege from this radical new disruption to the financial advice process.

Let’s cut through the hype to see what might happen with the emergence of robo-advice and, more importantly, what you should be thinking about to capitalise on this trend in your business.

Has something similar happened in other markets?

When considering major structural or disruptive change, always look for a proxy in adjacent industries or markets.  The best Australian proxy in this case is the stockbroking industry.  In 1996, CommSec first started operations as a telephone-based stockbroking service.  Ten years later, CommSec was arguably the largest stockbroker in the country, processing some 50,000 trades each and every day on behalf of over a million customers.  The emergence of CommSec and later E*Trade and others saw a fundamental disruption of the stockbroking industry by empowering consumers through technology to make and implement their own share trading decisions.

Different engagement models

Of course engagement models in wealth management are a little different, particularly when we have the regulatory overlay associated with providing advice.  The fact remains, however, that where a market can be disrupted for financial gain, technology providers will seek to do so to capture the profit pool that has been part of an industry that has not used technology to a great extent previously (platforms aside).

What do I need to do in my business?

Using the US as a guide to where Robo-Advice may go in Australia, we need to assume this will be a prevalent component of the Australian market in future.  So what should your strategy be?

An important strategy in a fundamentally changing market is a defensive strategy.  In this case, ensuring you are actively engaging with your clients is the key to a sustainable advice business.  Clients won’t be interested in alternative solutions if they are highly engaged with you in helping them meet their needs and share your business’ values.

Moving to more active strategies, the good news is that while Robo-Advice will undoubtedly mean some clients will disengage from their current adviser relationships, the size of the overall market will grow.  Reflecting on the CommSec example, how many of those over a million account holders would have been advised clients of full service stockbrokers previously?  The answer is, probably not many.  Having active marketing strategies to identify and attract clients who may be self-directed in managing their wealth but need advice is an important consideration.

Another piece of good news is that you can embrace technology as a way of delivering advice cost-effectively to clients.  For example, if you have ‘C and D’ clients who it may be uneconomic to service in a traditional full service advice sense, using a ‘direct’ service model may mean you can retain these clients as contributors to your business.  This can also help with future marketing to move these clients into a more actively engaged service model.

Yes there’s some hype, but also some great opportunity in embracing the emerging Robo-Advice trend: be sure to have your own business’ strategies in place as this trend takes hold.