Let’s face it robo-advice exists because face to face advice is expensive and the majority of the population won’t pay for it. Generally people won’t pay for goods or services that either have no perceived value or the cost exceeds the perceived value. In the financial services industry, I would argue the issue is the former; the majority of people perceive that they simply don’t need advice.
A quick step back in history. If we go back prior to 2013, most employees had access to financial advice through their company pension scheme; this was thought of as “free” advice in that advisors were paid commission by the pension provider. Then along came the Retail Distribution Review (RDR) that banned commission payments and so this “free” service now came at an explicit cost which a lot of employers as well as employees were not prepared to pay. Not surprisingly then, face to face advice levels dropped and along came the “advice gap”; the term which basically refers to the “have nots” – employees that don’t, for whatever reason, have access to advice.
So back to 2019 and we have in excess of 16 million people in the UK with less than £100 in savings; I think most of us would call this a savings crisis. Employees in this situation are just not financially resilient and an unexpected bill or interest rate increase can quickly lead to a major financial concern. Is it any wonder then that financial wellbeing is the next big workplace initiative; an employee with extreme financial concerns isn’t going to be 100% focused on their job that’s for sure!
But is this savings crisis down to the RDR and the advice gap?
In my opinion; no! Although there has to have been some impact, I just don’t think that the RDR is the main culprit here. I do have a concern that the RDR may have alienated the everyday person at particular points in their life when advice would have been good if not essential; for instance, people retiring and needing advice about how to take their pension funds. But everyday financial decisions like saving for a rainy day? No, this problem has much longer roots and in my view is about access and simplicity.
Robo-advice is a great innovation and like anything that can be more automated, costs are driven down. Costs aren’t removed; they’re just reduced so there are still explicit fees, but these are now arguably much more affordable. But automated or not, will the average person really seek out financial advice to set-up savings? Probably not, but robo-advice is a brilliant option for those who need transactional advice such as retirees looking at their pension fund options and needing advice on the best route for them.
For employers looking to still provide some form of financial advice to employees, robo-advice restricted to pension transfers and retirement, is a brilliant and affordable employee benefit. You are supporting your employees at the time they need it most.
But for the balance of the workforce who just need assistance with shorter-term savings goals, it’s simply about making it easy for employees to access what they need. Robo-guidance sits somewhere in between robo-advice and information sharing; it gives personalised information at the point that it is needed. Simply put robo-guidance enables an employee to complete a transaction, such as setting up an investment or savings account, without the need for regulated financial advice.
We recently conducted a survey which showed that more than two thirds of employees would use this type of service if it was available in the workplace; amongst millennials this figure increased to over 80%!
As with most problems, the solution is often multi-faceted, and this is most certainly the case with workplace savings; the answer lies in providing the right solution at the right time. For employees with complex needs a “real” financial advisor can never be replaced, for those with a specific one-off need robo-advice is a great alternative. For the rest there is robo-guidance or if you like self-service with virtual hand holding!