The future of advice is digital… but I’m not worried
There is a lot of talk at the moment about the advancement of technology in the financial planning space. I’ve been delving into the world of money saving apps as part of an upcoming episode and a question that often crops up is - will these advances end up replacing financial advisers all together? I mean, we live our lives through our phones now. Why couldn't an app just be developed to offer these services? Well, let's go over the current landscape and where things might be heading.
Open Banking
So just to give some background to what 'open banking' is. It's a series of reforms to how banks deal with your financial information. Through this all UK-regulated banks have to let you share your financial data such as your spending habits, regular payments and companies you use (basically your bank, credit card or savings statements) with authorised providers offering budgeting apps, or other banks – as long as you give your permission.
If you don’t have an understanding of open banking I’d suggest having a look as it's likely something you'll be hearing even more of going forward.
Open banking and it’s capabilities is still in it’s infancy and it’s not quite as commonplace as I feel it will be in the next 3-5 years. One of the main barrier may be the security considerations people have. Understandably, banking fraud is a real concern. Although the truth is using open banking through a FCA registered firm is very secure. Personally, I’ve found the money saving apps more useful than I thought I would and I could see once we get past the initial teething issues of the technology, it could benefit a great deal of people.
'Micro and Macro' Personal Finance
Being successful with your finances requires a mixture of positive daily money habits, understanding investments, taxation and having a proper long-term strategy. The area that advisers generally will struggle with is helping on the ‘micro’ level which is the day to day element of personal finance.
We as advisers have to draw the line on what our service can include and following you round giving you money saving tips is something that just isn't feasible. The issues though is that without addressing both levels of personal finance it can be difficult to ensure that things stay on track. Unless you are 'spending less than you earn' the long-term strategy details can fall away. If you can't get the foundation of personal finance right, the best advisers in the world will struggle to formulate a good plan.
The Regulated Planning Process
For those of you reading who are not very familiar with this. There are many areas of the regulated financial advice process which are frankly, downright tedious for all parties concerned. For example, if you have someone who have never done a proper expenditure breakdown and you collect that for the first time. Without adequate support and corrections that is likely to be very inaccurate. Typically things like underestimating spending, not including the genuinely miscellaneous things that we all spend a surprisingly large amounts on. Not just coffees but birthday present, car repairs, haircuts etc. This is no-one's fault, it's just getting a good handle of this sits in that 'life admin' area which we prefer not to have to deal with in our spare time.
The benefit of these apps using open banking is that you have the choice to use this data to collate a reasonable picture of your expenditure. It can identify not only your real life spending but also show your spending patterns. None of these apps are perfect by the way but I’ve found it’s definitely a case of ‘what gets measured get managed.’ Especially as we enter the world that it is all too easy to have various subscriptions and lose track Sometimes they are useful but other times they are hilariously off. Such as when I bought a fridge as a one off.
(You’ll be pleased to know dear reader, I managed to get that monkey off my back! 😂)
Despite this, I have actually found these apps quite useful when trialling them. You have to accept that all the free versions are going to be jam packed with affiliate links etc for changing bills but as long as you can take that for what that is, it can still be something that's very useful.
It's not just money saving apps where this market is developing. There are also financial planning software developers AdviceBridge who claim to reduce the overall administration of taking on a client from 40 hours to 4. This would be game-changing for firms, if it works. Although a lot of planning firms are naturally skeptical of some of this tech, for fair reason as sometimes the 'shiny new thing' can end up being an expensive own-goal if it doesn't work as promised.
Will this replace Financial Planners?
The inevitable and forward march of technology will create a level of competition for some transactional advisers who focus purely on products in the simpler areas of personal finance. Will it replace holistic financial planners who help clients manager the intersect between money and life? In my view, not a chance. Successful financial planning is one of the most complex and adaptive activities I know. It is as individual and varied as people's personalities are and for all the tech in the world. Nothing quite beats providing the very human reassurance and peace of mind that you get from a good planner. To take from a snippet of Carl Richard’s new book:
“Financial security is a feeling, not a number.”
In a nutshell, the difference between information and application are the reasons most people fail at disciplines. If that wasn't the case we'd all be walking around with six packs! I feel strongly that the companies that can properly use these technological advances will not only offer a far better service but also save time so they can start focusing on where they add the most value. Holistic financial planning will not longer mean looking at just Business Planning and Retirement Planning. It will mean combining ALL the levels that lead to financial success. The only way this can realistically be achieved is to outsource some of those areas. In this instance, helping support the 'micro' areas money management maintenance to the client through technology which will enable planners to focus on adding value where it matters most, the human aspects. Though the market around these technologies is still developing, it's clear to me the firms who will deliver the best service going forward are those who sees these technological advances as an opportunity, not a threat.
