The idea that technology can replace a financial adviser is nothing new.
In a world of autonomous vehicles and artificial intelligence that can defeat the Chinese Go Grandmaster, surely a computer can understand a person’s financial circumstances and concoct a reasonable set of recommendations?
But none of the original financial planning solutions, like Moneyvista, or financial aggregators, like Moneydashboard (the UK’s alternative to Mint in the US), broke through into mainstream usage.
So-called robo-advisers, such as Moneyfarm, Nutmeg and Scalable Capital, are gaining some traction through the integration of human advice with their robots, but they have by no means cracked the market.
These newcomers tend to focus on aligning an individual to the right fund or portfolio based on risk appetite.
In general, they do not look to offer the financial advice that many people need, particularly as they approach retirement. This later stage of life poses a fundamentally complex challenge that needs extensive data gathering and an assessment of future intentions.
The most valuable asset that incumbents have is the set of soon-to-be retirees on their books, each with reasonable sums of money spread haphazardly across multiple pension policies.
These retirees will need help. So, if those firms can find a seamless solution to understand their clients, give incisive advice and act to their clients’ satisfaction, then they will delight their shareholders in the process.
The challenge is, therefore, one of combining innovation with scale.
Start-ups do not have the volume to cut a decent profit on technology investment, while incumbent pension providers and advice firms, for all the rhetoric, have struggled to transform themselves into the Amazons of financial services.
Based on observations of firms across the sector, and the relative success and failure of those firms, four actions stand out as ways to deliver successful technology innovation:
• Understand that your customers are at the centre of their universe, not yours.
As the retailing of household products and digital media coalesces around an ever-smaller number of platforms (Amazon had 33.5 per cent of all UK online spend in 2017), so inevitably will financial services.
Realistically, many advisers and providers would be better off embracing this future rather than fighting it. This means thinking about who your customers are, what life outcomes they are trying to achieve and the physical and digital environments where they like spending their time.
This is the age of ‘Customer 4.0’, where a complex network of friends, family and media influence people more than traditional marketing.
Understanding this customer universe and building partnerships to break into it is, therefore, vital. Rather than simply thinking about the opportunities presented by the pensions dashboard and open banking, or even ‘open finance’, innovation should consider ‘open life’.
• Discover what drives savings and replicate that within an inherently long-term product.
The principle of people preferring immediate benefit over long-term gains has always been relevant to financial services.
For example, research has proven that people do not save enough for the long term – the Scottish Widows 2018 Women and Retirement Report recently reconfirmed people would be more likely to save if they could withdraw their money whenever they want.
However, the volatile investment market is inherently suited to long-term savings, and pensions have their own constraints on early withdrawal.
Technology innovation should therefore look to behavioural science and gamification techniques to give the quick satisfaction that people crave.
• Embrace artificial intelligence to personalise your experience.
Artificial intelligence unlocks more value from technology when it comes to delivering customer benefits.
But using artificial intelligence for advice and guidance needs an understanding of its two distinct strengths. First, it can engage customers though personalisation.
Second, it can deliver financial advice autonomously and in real time. Both need an understanding of who your customers are, including their situation, wants and needs. This will take data scientists with an understanding of longevity and investments deploying artificial intelligence effectively.
Thankfully, most pension providers have a ready-made data science capability, commonly referred to as the actuarial department.
In fact, the Institute and Faculty of Actuaries recently ran an event entitled ‘The Actuary as a Data Scientist – What, How and Why?’. It aimed to teach their members the skills needed to deal with artificial intelligence while raising awareness of how to use such skills across the insurance value chain, including marketing and operations.
• Embrace agile ways of working to create a continuous stream of customer value.
Eager to dispel a historic reputation for chronic inertia in the sector, virtually all large pension providers are now deploying some form of agile working across their business.
We recently surveyed major organisations and found that, across financial services, 78 per cent say improving organisational agility is a top priority for their board.
But the interpretation of ‘agile’ can vary hugely. Some firms see simple changes to flexibility such as working from home on a Friday as ‘going agile’, but this significantly undervalues the transformation and associated benefits that agile can drive.
Reorganising a business into agile teams involves creating non-hierarchical, cross-functional teams delivering continuous change and value to customers.
Some of these teams may be focusing on the underlying, reusable components of a proposition, such as giving valuations and assessing risk profile. Other teams then need to work together in combining those components to deliver a single coherent customer experience.
Fundamentally changing the way an organisation delivers change is a risky business. What is needed is an executive-sponsored agile transformation programme with clear aims, driving a coherent approach across the enterprise.
Advisers and providers should build their strategy for a future where individuals are fully empowered and have more control of personal data.
The pensions dashboard initiative is a key enabler of this transformation, but the winners in this new age will think more broadly about their clients’ lives. To execute this strategy successfully, firms should reorganise themselves into agile teams, delivering rapid, incremental innovation and continually learn from success and failure.