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GfK - Robo-advice “Build it and they will come”

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A glimse into a future where human financial advisors are replaced by "Robo- Advice”, algorithms that provide portfolio management by Matin Grimwood

Published in: Economy & Finance
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GfK - Robo-advice “Build it and they will come”

  1. 1. 1© GfK 2016 | Innovatielab – Lessons from abroad Robo-advice “Build it and they will come” | Martin Grimwood
  2. 2. 2© GfK 2016 | Innovatielab – Lessons from abroad A panacea for the advice gap?
  3. 3. 3© GfK 2016 | Innovatielab – Lessons from abroad Creating engagment through a regulatory sandbox and innovation hub
  4. 4. 4© GfK 2016 | Innovatielab – Lessons from abroad http://citywire.co.uk/new-model-adviser/news/fca-accepts-nine-firms-into-robo-advice-unit/a952292 Which has been positively received by financial service providers
  5. 5. 5© GfK 2016 | Innovatielab – Lessons from abroad And has also encouraged activity from Fintech firms
  6. 6. 6© GfK 2016 | Innovatielab – Lessons from abroad Ref: table taken from ‘AI – The Potential fro Automated Advisory in the Insurance Industry’, Puneet Bharal, ACORD & Larry Shapiro, Surely Group, quoting the Oxford University paper ‘The future of employment: how susceptible are jobs to computerisation?@ Carl Benedikt Frey† and Michael A. Osborne September 17, 2013 Streamlining customer experiences and controlling costs?
  7. 7. 7© GfK 2016 | Innovatielab – Lessons from abroad Base: All 16+ /18+. Time period: Annual data Sales of retail investments peaked in the late 1990’s and declined significantly in the early 2000’s 0% 10% 20% 30% 40% 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 18+ RDR Lehman Brothers collapse Proportion of GB adults holding any investments
  8. 8. 8© GfK 2016 | Innovatielab – Lessons from abroad Distribution channel used to acquire investments *Scottish widdows includes Lloyds TSB At its peak in the 1990’s the majority of investments were being sold by branch staff or through life office owned direct sales people 45 49 39 28 29 7 4 4 3 3 24 1 1 2 2 1 1 3 1 10 11 3 7 6 3 1 1 7 30 32 34 45 57 74 85 86 90 92 57 11 3 19 15 4 14 6 5 4 5 6 0% 20% 40% 60% 80% 100% Standard Life Jupiter Norwich Union Legal & General Prudential Scottish Widows Barclays Halifax Abbey National Nationwide Market Independent Financial Adviser Employer Independent broker The company direct Other bank/B'soc
  9. 9. 9© GfK 2016 | Innovatielab – Lessons from abroad Base: All 18+. Time period: 12 months rolling This decline in investment holding coincided with the decline in bank and life office direct sales channels prior to and after RDR 0,0 1,0 2,0 3,0 4,0 5,0 Jan-06 Jan-08 Jan-10 Jan-12 Serviced IFA/ tied adviser From a company salesperson Distribution channel used to acquire investments
  10. 10. 10© GfK 2016 | Innovatielab – Lessons from abroad Penetration of those taking out investments in last five years Base: All 18+. Time period: 12 months rolling And mainly effected mass market investors, the general public 0,0 1,0 2,0 3,0 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 <£20k £20-50k £50-100k £100k+ RDR
  11. 11. 11© GfK 2016 | Innovatielab – Lessons from abroad Base: All 18+. Time period: Annual data The same decline is evident in the UK for life insurance, which also peaked at the end of the 1990’s 0% 10% 20% 30% 40% 50% 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 18+ Proportion of GB adults holding any life insurance
  12. 12. 12© GfK 2016 | Innovatielab – Lessons from abroad Life is sold, not bought! But is this in the interest of the (vulnerable) consumer? © GfK 2016 | Innovatielab – Lessons from abroad
  13. 13. 13© GfK 2016 | Innovatielab – Lessons from abroad So the FCA thinks Roboadvise can fill the ‘advise gap’. But what can we learn from the US? Tech-upstarts Big brand followers
  14. 14. 14© GfK 2016 | Innovatielab – Lessons from abroad Preference for direct investment arrangement vs actual Base: All 18+ opened investment in last 5 years and considering investment (Wave 2). Time period: 12 months rolling When faced with a fee for advice mass market investors claim to prefer a direct route, but have failed to take action 0 20 40 60 80 100 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Preference for direct Actual Direct RDR, change from commission to fee
  15. 15. 15© GfK 2016 | Innovatielab – Lessons from abroad Preference for direct purchase of life insurance vs actual Base: All 18+ opened life in last year and considering life (Wave 2). Time period: 12 months rolling This is also the case for life insurance 0 20 40 60 80 100 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Preference for direct Actual Direct RDR, change from commission to fee
  16. 16. 16© GfK 2016 | Innovatielab – Lessons from abroad Only 4% would consider robo-advice Recent research from GfK in the US support these recent innovations “It would be important to have someone to call on the phone to provide guidance if they were to consider using robo-advice” “Would trust the advice they get from computer algorithm more than advice they would get from a human adviser” 10% 63%
  17. 17. 17© GfK 2016 | Innovatielab – Lessons from abroad Which leads us nicely on to…bionic advice © GfK 2016 | Innovatielab – Lessons from abroad
  18. 18. 18© GfK 2016 | Innovatielab – Lessons from abroad Personal Value of “Self-reliance” declined from 4th most important personal value in 2007 to 12th place in 2015. So is there any evidence that mass market UK investors will become proactive? 16 12 0 2 4 6 8 10 12 14 16 18 2007 2015 Self-directeds
  19. 19. 19© GfK 2016 | Innovatielab – Lessons from abroad 24% 32% 2011 2015 % of UK consumers who agree “Virtual interactions with people and places can be as good as being there in person” (Top 3 box) Source: GfK’s Consumer Life Report 2011-2015 That said, virtual interactions are becoming more mainstream 1 in 3 claim that virtual interactions with people can be as good as being there in person
  20. 20. 20© GfK 2016 | Innovatielab – Lessons from abroad “We believe we will be able to work with Michael Lawrence [from the FCA’s advice unit] and his team extremely well as we deliver our automated solutions over the next few months and years”* * Larry Banda - Director of Financial Planning, Protection and Investments (Money Marketing 3 October 2016) Nationwide trials in-branch automated advice service • Nationwide announces it is testing its automated advice proposition after entering the FCA’s robo-advice unit. • Described as “guided advice”: • customers will go through an automated process which can deliver a personal recommendation, • but they will be assisted by financial planning managers or other in-branch staff and may be referred for full face-to-face advice depending on their needs.
  21. 21. 21© GfK 2016 | Innovatielab – Lessons from abroad Bionic solutions can also be applied to provide better customer experiences within general insurance  GI market experiencing decline in customer satisfaction  Tech can be an enabler for increased customer satisfaction, especially at moment of truth  An example of this is GfK Claim Manager, a web based validation tool that allows insurance companies to:  Calculate the replacement value of damaged items.  Identifies up to three most purchased products in the retail market which are comparable in technical features of a damaged item.
  22. 22. 22© GfK 2016 | Innovatielab – Lessons from abroad Improving customer experience and loyalty through digital technology is perhaps one way insurers can regain the initiative from PCS Typical customer insurance pain points Confusion over cover and price Multiple insurance types Built around insurers not customers Don’t reward loyalty Not personalised Repetitive signup & renewal My Aviva TSB Pick and Protect
  23. 23. 23© GfK 2016 | Innovatielab – Lessons from abroad Image sources: ; CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=140450 Providers launching into the robo market face two key challenges
  24. 24. 24© GfK 2016 | Innovatielab – Lessons from abroad  Robo advice is endorsed by the UK regulator, it is seen as a technological solution to a side effect of regulation  However, it won’t be the panacea for mass market engagement  Because the old adage of ‘Life is sold not bought’ is still true  That said, there is a place for Bionic solutions:  to support human sales interactions with clients  to streamline customer experience touchpoints  to provide flexibility to more sophisticated consumers Key take-outs from the UK

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