Financial sector takes the lead with robo-advisors
Robo-advisors are "certainly a business of the future". This is the view of Eugene Maree, CEO of Wealthport, an online investment management platform.
Robo-advisors are software products that provide customer advice online with moderate to minimal human intervention, based on mathematical rules or algorithms. Maree says there will start to be more instances of robo-advice incorporated into traditional advice streams.
"There is no doubt that you can take robo-advice and make it part of the advice process," says Maree. "If you have a simple need, robo-advisors can really work well, and I think it's a really nice alternative [to human financial advisors]. You can take a lot of the thinking and replicate it over and over again so that you don't have a variation in advice from one advisor to another."
According to a Juniper Research study, robo-advisor platform revenue will reach $25 billion by 2022, up from an estimated $1.7 billion in 2017. The automated investment platforms are widening the appeal of wealth management with their delivery method via intuitive smartphone apps, according to the study.
Challenges to overcome
But, while forecasts show robo-advisors will play an increasingly active role in the financial services industry, there are some challenges to overcome.
According to Maree, the main challenge is convincing a client to move from seeing an advisor with whom they have a relationship to an automated process.
Arthur Goldstuck, MD of World Wide Worx, echoes this sentiment, saying it will be a while before robo-advisors become the core customer interface. "The main challenges are in customer experience and effectiveness. The two go hand-in-hand. If the robo-advisor is effective, in the sense of giving people what they want, they will either forget they are dealing with a software interface, or they will not mind doing so.
"If it simply gives them form answers or continually refers them to a Web site or call centre, then it will cause frustration and potential brand damage."
In the South African context, Maree says, there has been an uptick in the adoption of robo-advisors, but the challenge is to grow and survive.
Taking the lead
Industries that have taken the lead and are experimenting with robo-advisors are insurance and banking, says Goldstuck. People can expect to see or hear more of these as the momentum builds, he adds.
"Traditional call centres are not coping with the volume of customer inquiries, and many people do not have the patience to search a Web site for the right information, or wait for an e-mail response. The robo-advisor, in effect, automates the process in real-time.
"Aside from banking and insurance, we can expect to see [robo-advisors] in any sales-oriented industry, among telcos and in health services, among others. It will only be limited by the imagination of customer interface specialists."
In short-term insurance, says Maree, the adoption of robo-advisors is a bit easier, because the outcomes are quite simple. Robo-advisors make it easier for clients looking for alternatives or comparing quotes for short-term insurance.
However, it becomes a little bit more complicated in long-term insurance. "It's not only about the price, but it [long-term insurance] has very different benefits and different conditions. The fine understanding of that is quite important.
"If you are just buying a pure life policy as a young person and the purchase is of a fairly low value, it probably won't have much of a risk. The moment one adds dread disease cover, an existing condition or life cover for specific needs, that is where it becomes a bit more complicated in the robo-advice space."
The type of automation and advice process will need to be improved in areas where the requests become a little bit more detailed, says Maree.