A blessing or a curse? Opinions about the future of robo-advisors are strongly divided, even in the banking sector.
The long-awaited mild spring weather did not stop several hundred bankers from attending Monday’s Finance Circle, organised by the ZHAW School of Management and Law and the Zurich Banking Association (ZBV, site in German). In a serious of talks, the topic under discussion was whether robo-advice would soon eclipse classic client advisory services.
Interest in the subject was keen. In response to an opening question from ZVB president Thomas Ulrich, at least half of those present put up their hands to show they were active in client advisory services. The robo-advisor has become a fact of life for these banking employees that cannot be wished away. «You cannot close yourself to it,» said the moderator of the evening, Christoph Kley, lecturer at ZHAW’s Institute for Wealth and Asset Management.
Felix Niederer, founder and head of the first Swiss Robo-advisor start-up True Wealth, stressed how important it was for Switzerland, with its long banking tradition, to take an active part in this development. «If we do nothing, it won’t be long before American providers step in,» noted the trained physicist, who launched the digital asset management platform True Wealth with Oliver Herren in October 2014.
Democratization of Investment Advisory Services
It makes absolutely no sense for those who are currently working in client advisory roles to try to resist the development, finews.ch editor Frédéric Papp agreed. The fact is robo-advisors will contribute to a «democratization of investment advisory services», lower costs for clients as well as more transparency, especially against a background of increasingly stringent laws and regulations in the finance sector.
In view of the current flood of regulation Ivan Büchi, leader of the digital office at Glarner Kantonalbank, make this prediction: «In five years robo-advisors will be indispensable. It will hardly be possible for a client advisor to look after his or her clients without them.» Because at that stage only the machines will be in a position to recognise the appropriate investment products or strategy for a private investor.
Disadvantages of the «Investment Machines»
Furthermore, the ongoing low or even negative interest rate climate is actively pushing many bank clients to seek investment advice – clients who because of their relatively low investment sums can no longer afford individual advice and are therefore delivered into the arms of a robo-advisor.
However, the participants in the discussion agreed that the «investment machines» also came with disadvantages. Complex investment needs cannot be dealt with by a robo-advisor, Frédéric Papp said. He also called into question the risk profile drawn up by the computer for each user. Many clients would – especially in good market phases – overestimate their knowledge and ability, which can lead to nasty surprises in bad times. With a robo-advisor, no advisor is at hand when markets are heading towards a crash.
Only Hybrid Has a Future
Against this background, the experts on Monday evening were in agreement that the robo-advisor only has a future in a hybrid role, a model that foresees support from a client advisor alongside the digital investment strategy, for example the service being offered by Bank Linth in Switzerland (finews.ch article in German).
However, this calls for significant empathy and social skills on the part of the bank employees, which is currently not very much in evidence, a view expressed by different representatives of ZHAW. The banks have an enormous amount of catching-up to do, which is where education institutions have a role to play.
Client Experiences Needed
Apart from empathy and social skills on the part of the advisor, another important factor in the implementation of robo-advisors is the «customer experience».
While other sectors are much more advanced in this area (Amazon, Facebook, Neflix, Spotify, Airbnb), creating an emotional connection with customers who associate positive experiences with these providers, banks have not yet managed to offer a comparable customer experience, as Felix Niederer noted. A lot of work is needed here to be able to win new clients and hold onto existing clients, said the co-founder of True Wealth. His platform has attracted at least 700 clients with assets of more than 30 million francs.
Banking Has to Become Cool
If the financial sector – with the help of the robo-advisor – manages to take this step, banking will also become something cool and possibly boost the demand for additional banking advisors, Frédéric Papp predicted in his positive future scenario. Because the more people that use a robo-advisor, the greater the need there will be to access advice connected to it.
Bankers are not afraid that their jobs will be replaced by machines, at least according to those attending the Finance Circle. In a survey carried out at the end of the event, the overwhelming majority said they did not believe robo-advisors would steal their jobs.
