Where do robo-advisers take their market share from?

In technology circles there is always much talk about ‘digital disrupters’ – the energetic, often ‘bright young things’ who are going to revolutionise all kinds of markets. At the moment, I appear to be forever reading about the ‘Uberfication’ of various sectors – technology companies running apps that plan to turn the way we do things on their head, all with a swipe to the right/left or a drag-down. For every Uber that does do exactly that, there are hundreds (if not thousands) of tech-based ideas that are effectively solutions for problems that don’t exist. You can probably guess where they end up.

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Julie Murray
10th April 2017
julie murray revolution
"How comfortable would a customer be in going through the whole mortgage process online, and not having any recourse to a ‘human adviser’?"

There has been much talk in advice circles lately about ‘robo advice’ and, more specifically to the mortgage market, ‘digital advice’. The companies which are apparently at the forefront of this market no doubt hoping that, given consumers are happy to do most things online or via a mobile phone, they will naturally gravitate to a full online mortgage advice process. Albeit one that, at present, doesn’t appear to be fully ‘online only’ although the suggestion is that this will be coming in the future.

This appears to be an interesting time for these types of advisers, given that their appearance comes at the same time as the mortgage intermediary share of the market continues to grow upwards, following on from the MMR. Indeed, you would probably say that without a thriving intermediary sector, there would be much less likelihood of these companies existing.

The big question is, what sort of gap is being filled here? Is this a new breed of mortgage customer that has never received advice before but now sees the benefits of online advice? Is it, for example, a customer that would previously have gone direct to the lender? Or is it a mortgage customer that has gone to intermediaries before but now prefers the online brokerage route? In other words, where do the online advisers take their market share from?

I note that there was an interesting debate about the merits, or otherwise, of this type of ‘robo advice’ at the recent FSE Glasgow event. Again, I suspect existing advisers raised the question of what sort of threat these online advisers might pose to their own businesses. It’s an interesting discussion, because we’re often told that the intermediary dominance of the distribution sector is likely to be threatened by increased use of technology by lenders, but could the real threat actually come ‘from within’ in the use of technology by advisory firms. After all, a lender utilising technology still only has its own limited mortgage product range to sell; an online adviser – depending on their status – has potentially the whole of market.

So, in my view, I can certainly see a bigger threat to existing advice firms from online advisers rather than direct-to-consumer lenders. But, there is also the consideration of a customer’s mindset to think about and this is not a new argument by any stretch of the imagination, but how comfortable would a customer be in going through the whole mortgage process online, and not having any recourse to a ‘human adviser’? At the moment, judging by the online models, this isn’t an issue because the process does not take customers all the way – instead customers input the details, etc, and then at some point during the advice process, they are called and the human touch is provided. We are told that, eventually, that won’t be the case, but in a way this may make the models less attractive because most customers I know – certainly when it comes to a mortgage – want to talk to an adviser anyway to ultimately make sure they’re doing the right thing.

This argument was undoubtedly in the mind of panellists at the FSE Glasgow debate who urged existing advisers to be wary of these models, as they should be for any competitor, but not to fear them too much. Others suggested that while technology should be embraced these models don’t necessarily pose a huge threat. There is also the issue of whether this type of advice works anywhere beyond prime, mainstream mortgage customers with no complications in income, circumstance, etc. And, again as many have pointed out, very few customers can be judged to be this simple and easy to deal with.

In that sense, the greater complexity of both the mortgage market and the products available still suits face-to-face/telephone advice perhaps rather than online only. I would imagine it’s difficult (although probably not impossible) to put together a programme/app/online process with enough 'power' to comprehend every ounce of data, particularly when it comes to affordability and income. Plus, and let’s be honest here, sometimes customers can ‘forget’ some of the details required to get across the mortgage threshold.

All in all, technology should be embraced by existing advisers – there’s plenty to commend utilising quality CRM/sourcing systems and making sure you get the value out of every piece of hardware and software you use. However, I’m not convinced as yet that we should be fearful of online advisers, any more so than any other existing broker competitor you have. Good advisers should always be able to secure and maintain clients – in effect be aware but don’t stop the good things you’re doing.

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