How Data Analytics is Changing the Face of the Financial Service Advice Market

Featured article by Matthew Tansley, Founder, CEO at Propillo

The Financial Services industry has undergone significant change in recent years. The rapid advance in data analytics coupled with the demand of all things digital from the millennial tech-savvy generation, has contributed to the growth of automated financial planning tools and digital financial advisors. These algorithmic, low-cost alternatives to managing money have opened up financial advice to a wider audience than ever before.

What are digital financial advisers?

There are currently two types of digital financial advisers; robo advisers and digital advisers.

A robo adviser is an online financial advice service that uses model portfolios and algorithms based on information provided by the client. There is minimal or even no human interaction and the focus is on investment allocation rather than financial planning. It has the advantage of being a low cost and convenient method of advice that is opening up financial advice to more people than ever before. However, there is no human element and no advisor to answer important questions that may arise.

A digital adviser is a hybrid of a robo advisor and a traditional financial advisor.  As well as the online ease of a robo advisor, there is an actual personal advisor available via chat or phone. A client’s unique set of circumstances can be considered to provide more personal financial advice. A great example of a digital advisor is Propillo who are an online mortgage broker servicing the whole of the UK. Using their platform you are able to easily find the most cost effective option from the comfort of home but also speak to human advisors who can make sure everything is exactly as your wanted.

The benefits of automated/digital financial advice

•    Consumers receive more consistent advice when they use automated tools

A well-developed algorithm is more accurate than the human brain in making predictions. With automated tools, there is no human error or bias and therefore more consistency.

•    Consumers receive advice without pressure of human relationships.

Decisions can be made freely and objectively without being led by a human adviser.

•    Consumers receive the most up to date information when using an automated tool.

Information is updated and processed quickly to help assess and reassess recommendations on an ongoing basis. Human advisers will not instantly be up to date with developments.

What kind of financial advice can an automated tool/digital adviser provide?

Digital advisers are being used in all areas of financial services and are helping ease the strain on call centres that can’t cope with the amount of calls they were receiving from customers at the lower end of the market.

They can be used for:  

•    Mortgage and remortgage deals
•    Insurance plans
•    Banking
•    Investment

Will automated tools/digital advisors replace traditional face to face financial advisers?

There is always likely to be a demand for face to face financial advisers as with all products/service ranges where there is a low to top range offering.  It is however, more important than ever for financial advisors to understand their client’s goals so that they can offer them the personalised advice not available by their automated competition.

The customer that will use an automated tool/digital advisor was likely never the target market of a traditional financial adviser. They would not have sought advice previously before the automated option was available. A digital approach offers a much lower barrier to entry.

Rather than taking away customers from financial advisers, the automated tools and digital advisers are opening up a whole new market and will continue to develop and improve their capability and product offering to reach more people. Financial advisers should embrace the automated tools and use them to offer a bespoke combination of automation and face to face services.

What does the future look like?

It is clear that we are on the path to a more hassle free relationship with our personal finances. It is extremely overdue, especially in some of the more archaic parts of the financial services system, such as mortgages. Overall we can expect costs to reduce, advice to be more widely available, financial services to be more inclusive and hopefully the pain in the a** factor will be reduced!