Why robo-advice won’t work without the human touch

While future generations may be entirely happy to transact online, today’s pension freedoms retirees still require a service that is delivered virtually in person, writes Phillip Rose of Group IFA

So-called robo-advice simply will not work without the involvement of a human adviser when dealing with the current generation of retirees.

I am developing a proposition that delivers just that, but using an online process to reach the mass market that advisers cannot afford to service face to face.

Two years ago I launched a comparison website for pensions, life insurance, annuities and protection, called Rosey Futures. Soon I will move the site to its next phase, which will combine online and telephone communication with cashflow planning software.

I want to offer financial advice over the phone and we are developing software that will facilitate that.

Some advisers already offer advice over the phone, but we found they are only doing so with existing clients. Full and comprehensive financial advice over the phone with new clients has yet to be attempted.

I decided we could build something online that would allow non-clients to receive advice. However, when we looked at what was available we made an interesting discovery.

Take life cover, for example. We already have the Rosey Futures website up and running and it is possible to buy life insurance through it. We have seen that a client will go all the way through the process, and understand what they are buying, but will not actually purchase the cover.

Out of 4,000 clients over 16 months, two proceeded to checkout on their own. We found that they needed to ring us up and talk through the planned purchase to make sure they received the right cover.

I am therefore unconvinced anyone will buy cover online without speaking to a human first.

Maths deficiency

The public has a low level of understanding of what financial products such as insurance do, and the basic mathematical concepts behind them.

I have spoken to intelligent people, who have asked me the purpose of life cover when they will not benefit from it while they are alive.

When I explained that they might want it for the benefit of loved ones, they have responded by asking why they can’t just save up the premiums.

If you wanted £100,000 worth of life cover to pay off a mortgage there is no way you would be able to save that much with £11 per month.

This also applies to pensions. People could not see the value of paying an insurance company for an annuity.

Even though that income was guaranteed, the idea that they might die before running out of money made them feel the annuity was bad value and the provider, despite offering a guarantee, was pocketing their money.

Good to talk

We know that a tiny proportion of users transact on their own and we also know when they drop out of the process. At this point a phone call should be made.

This is where our innovation comes in. We have developed cashflow planning software that can be used over the phone and online simultaneously.

The cashflow process is not as sophisticated as, for example, Voyant, but is not a massively dumbed down version either.

Pitching it at the right level is important because it must be something the planner and client can use together. The system allows this by enabling the client and adviser to share the same computer screen view of the cashflow tool, while at the same time speaking to each other over the phone.

Importantly, by the time the client has reached this stage the initial cashflow plan has been built and all the required information has been inputted, and at this point the adviser takes the client from where they are at that stage through their life objectives.

That includes the level of risk they wish to take for a particular objective. They will be able to see predicted effects of different risk levels on the likelihood of reaching a particular objective straight away and can then discuss it with the adviser straight away.

Importantly, information about the client’s financial circumstances has been provided largely by the client, not by us. Instead of us obtaining letters of authority to get information from providers, the client does this themselves.

One of our administrators will provide them with a checklist and will be able to guide them through the process until the information is complete.

Asking the client to do a little more means they pay less. A standard financial plan costs around £1,500 to put together. This method halves the administrator’s time and cuts the adviser’s time by a third, meaning the total cost would be around £300 to £500.

Horses for courses

My main financial planning business, Group IFA, caters for clients with £1 million to invest. This process would never form part of that business.

It is like the retail clothing brands Selfridges and Primark. The former is higher end and expensive, the latter cut price, but they are both owned by the same people, the Weston family. It is potentially a recession-proof strategy.

Our process is aimed directly at the pension freedoms crowd, people who might be seeking at-retirement guidance, probably over the phone, from the free Pension Wise service.

It is possible that future generations will want to transact online differently but I believe today’s retirees require the human touch.

Phillip Rose is chief executive of Group IFA