"This should be a wake-up call for traditional advisers and intermediaries who have resisted the need for change so far."
The stone age
Traditional financial advisers have dominated the distribution of financial products for the last 20 years. It is the case for investments, for mortgages and for protection insurance. These intermediaries were ideally positioned to sell these complex products often associated with painful fulfilment journeys and a complete lack of understanding by the consumers.
However, the need for these financial products remained very high across all demographics. Many have been left to fend for themselves when it comes to finding the right financial advice and education, when making big life choices like taking out a mortgage. But things are starting to change for the better.
The iron age
There recently came a generation of entrepreneurs who had grown up in a world where digital and user-centered design had been theorised and taught by all major technology companies, from Google to Netflix. These entrepreneurs decided to have a go at the financial intermediary market, with a vision to build scalable services that would deliver digital first, great customer experience, end to end. Their founding principles were about transparency and agility within the market, focusing on accessibility, transparency, user experience and scalability.
The famous Marc Andreessen, VC and entrepreneur in the Silicon Valley explained in a post in 2011 why the software was eating the world. Although it took a bit of time to reach the financial intermediation space, software is eating that space as well, at pace, having started with Savings and Investments. This was the first segment to experience such a transformation with the likes of Nutmeg, Weathlify, Moneyfarm and Scalable Capital. At the time these players were called “robo-advisors” as they were aiming for self-served digital services where clients were acting on their own. Some of them enriched their proposition by providing human advice which boosted their unit economics.
Then it was the mortgage. Five years ago a number of startups like Habito, Trussle and Mojo transformed the way people finance their home purchase by delivering a digital-first service. Given the complexity of the mortgage process, these services have always been fully hybrid, but software and data have been extensively used to improve the efficiency of the delivery model and make home buyers' lives easier.
Finally, protection insurance was next in line with Anorak in the UK and Clark in Germany, successfully transforming the way the mass market access expert advice for life insurance, income protection and critical illness - through a combination of online education, engagement and personalised recommendations combined with human advice, as and when needed by the client.
The industrial revolution
We are now entering the next phase of acceleration. Everyone acknowledges that the digital broker model of combining technology, human advice and backed by an ever-growing data lake, is leveraging software to bring automation to the operating model, and represents the future way to sell complex financial products. Users need this kind of help and education to find the right products and trust guidance provided by advisers.
In the last month, Tier 1 players with a massive distribution footprint have decided to play the digital broker game. They will massively accelerate the scaling of the digital broker platforms they have invested in or acquired. This is the case for JPMorgan who acquired Nutmeg in June, the combination of the two will bring significant growth synergies to the sector. More interestingly, a company like RVU (Uswitch, Confused.com) which traditionally played in the comparison and financial guidance space, is entering the broking and advice world with the acquisition of Mojo mortgage broker.
This should be a wake-up call for traditional advisers and intermediaries who have resisted the need for change so far. Embracing digital platforms to best serve their clients, and is the only way forwards. This technology also opens the door to a wider pool of potential clients, who may be more likely to be influenced by digital tools before approaching an adviser. With technology, large digital platform players like price comparison websites (and at some point the GAFA) are becoming real threats.
For a long-time, financial advisers thought that robo-advice would flop. In some ways, they were both right and wrong. Hybrid digital advice is scaling and some of these companies just received a massive acceleration booster. Remember what happened to general insurance brokers when the price comparison websites had a go at their market and ended up dominating the distribution of motor and home insurance.
Overall, the thing to remember is that this is great news for the end consumer. As more investment goes into digital brokers, access to financial advice and education will grow and make the mass market even more capable of managing your client's financial health - especially when it comes to big decisions like investing, borrowing or protecting their family.