By Tom Murray, Head of Product Strategy, Exaxe
As full, independent, whole of market advice by definition requires a lot of research by the financial adviser (FA), there is a limit to how cheap it can be made, so this situation is likely to remain.
Given that, the focus has turned to making use of automation in order to make advice cheaper. Many journalists, politicians and regulators keep promoting this as a silver bullet that will solve the cost problem. They seem to think that financial advice is capable of being reduced to the type of definitive choices that will be amenable to being asked on a computer. However, advice is more complicated than that, and requires face to face contact in order for the FA to understand not only the answer but how well the questions were understood by the consumer; tone of voice and hesitation don’t come through via websites.
In parallel with this, the government’s ill-thought-out promise of guidance to retirees making use of the pension freedoms that were granted in the 2014 budget has caused a separate but related problem. The government’s guidance package, Pension Wise, which is delivered either face to face by the Citizen’s Advice Bureau (CAB) or via telephone by The Pension Advisory Service (TPAS), was designed to provide free guidance, but emphatically not advice, to retirees who had been granted access to their pension but couldn’t afford to take advice on what to do with their money.
One of the crucial difficulties for both the CAB and TPAS is to make sure their staff don’t stray from offering unbiased guidance into the more dangerous field of advice, which they are not qualified to give. This could expose the CAB or TPAS to being sued in the future, if any customer perceives themselves to have been advised incorrectly. The problem is that the conversations are extensive – sometimes the telephone calls can run beyond the allotted 45 minutes – and they are being held with consumers who are discussing issues that they are not very au fait with. Most people know little about pensions, and it is hard for the ‘guidance-givers’ to be sure that anything they say is being seen as information rather than advice.
This is the exact opposite of the issue with automating advice, as it comes from the fact that people can accidently endow the script spoken with extra meaning depending upon the tone and style of delivery. As such there is a danger that when the ‘guidance-givers’ are talking about the options available, the customer may perceive a bias towards one of the options over the others from the way the staff member talks about it. This is even more risky as the questions coming from the user may be unformatted and it can be difficult not to stray into answering the questions asked, no matter how much training has been given to the guidance giver.
It strikes me that there is an obvious solution here. Automation is a dangerous idea for the advice world but may be exactly the right answer for the world of guidance. The computer will deliver everything in a programmed way, will not get tired and drift off-script, and will always ensure that all necessary caveats are delivered. A script that cannot, or at least should not, be deviated from is perfect for automating, thus removing the human propensity to deviate by getting involved at a personal level.
The computer makes it much easier to make sure than any information delivered on screen is followed up on paper, exactly as it was delivered during the guided process. Also the system can control the questions being asked to make sure the answers precisely fit the question.
This fulfils the basic need of guidance – that it gives a lot of information, outlines all the options and puts out all the caveats, but never drifts into making actual recommendations as to which actual decision the individuals should actually take. The provision of automated, interactive guidance would make sure that the demarcation line between advice and guidance was maintained.
It also is a far better for the consumer. In particular for telephone guidance, the use of an automated pre-recorded script, identical to the one that website visitors use, would mean that the delivery of the advice would be identical to that given to those who visit websites.
The Pension Wise website is currently full of static information, which is useful up to a point. Adding in robo-guidance would be a great way to ensure a consistent and easily used service could be made available to all the population at a reasonable price.
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