Put simply, it is financial advice given online that has been generated by an algorithm. No literal robots are involved.
That this new wave of technology has been branded a revolution indicates just how much potential it has to be disruptive; robo-advice could change the face of financial services by making a formerly exclusive and expensive industry accessible to everyone and at lower fees than ever before.
Certainly in investment management robo-advice is building market share fast, and mortgages is next in line. We believe it has a vital role to play in democratising access to quality advice.
Inferior and dangerous
Yet some in the industry believe it is inferior and even dangerous, because a robo-adviser can’t yet go off-script and therefore ask the right questions to give personalised advice. Put like this, it is easy to see why naysayers doubt the impact of robo advice.
However, across the financial services industry we are seeing signs that this group is shrinking – in June, HSBC announced it was rolling out robo-advice for small savers, while Blackrock invested in Scalable Capital, a UK robo-adviser.
In October Aviva, whose executives previously told the Financial Times that “real” robo-advisers had yet to emerge, bought a stake in wealth management robo-adviser Wealthify. Even the CFA Institute is updating its professional exams to include questions on artificial intelligence, big data and robo-advice.
Early stages advice
At Habito, we use robo-advice to guide customers through the early stages of applying for a mortgage.
Our Digital Mortgage Advisor (DMA) starts all applications by asking a set of dynamic questions to assess current requirements and future life events.
We then scan over 70 lenders and 20,000 products to find the best mortgage on the market for that person, in real-time and on any time.
There is no way a human broker could do all this in five minutes, but of course our robo-adviser is not 100% right for every scenario, and that’s where our experts come in.
What humans do best
The DMA – it gives us more time to focus on what humans do best; the talking, planning and thinking creatively around more complex or unusual mortgage cases.
Each of our brokers submits many more applications every day than the industry standard, but has the time to have meaningful contact with each customer.
The second huge advantage is that it means we can provide our service for free.
The technology already exists to perform repetitive manual tasks much better than humans can, but adoption with traditional brokers is still low.
Robo-advisers are simply cheaper, faster and more accurate and it is largely due to our DMA that we’ve been able to grow as quickly as we have, in just 18 months.
The tide is turning
Investment into robo-adviser businesses continue to grow and while doubters still theorise about a robot’s lack of sophistication, the technology delivers for customers everyday.
The machines march on.