How AI holds the key to a robo-advisory reboot

augustus 30, 2023

“Robo-advice” is a clichéd and overused term that has received a fair share of criticism in the past.

Can GenAI revive robo-advising?

The first robo-advice proposition was launched in the UK in 2011, more than a decade ago, but it was back in 2016 and 2017 when robo-advising hit the pinnacle of the hype cycle. During that time, a mass of digital wealth robo-advisor offerings hit the market, promising to democratize access to wealth management services for the mass market. In other words, for those who don’t qualify for traditional wealth management services.

But the robo-advice experience was disappointing and the hype short-lived. By 2019, 1 in 4 robo-advisors had shuttered, including robo-advisors launched by big names like UBS, Investec and ABN Amro.

Then, during the pandemic, there was an explosion in retail investing as many hunkered down and took up trading from their armchairs. As we navigate the post-pandemic environment, we find ourselves in what’s been described as a “once-in-a-career upheaval” for the wealth and investment industry:

• Inflation, market volatility, and interest rates are huge concerns for investors and customers.

• Customer demand is changing; demand for retail trading is down, demand for ETFs is up, as is a preference for ESG investments.

• The transfer of wealth to a digital-first generation is happening.

What’s more, in November 2022, GenAI entered the public consciousness of the masses with the launch of OpenAI’s ChatGPT.

There has been a lot of ink spilled already on what the possibilities and opportunities for GenAI are across different industries. When it comes to wealth and investments for the masses, the adoption of GenAI is an inflection point for robo-advisor propositions. It will see robo-advisors win new customers by feeling like a premium service, retain those customers by helping them to achieve their goals, and become sustainable by capturing a larger portion of customers' investments.

Robo-advice failed because it wasn’t premium or personalized

Robo-advice 1.0 failed to deliver exceptional experiences for several reasons:

• Lack of engaging experiences. Customers were usually asked to fill in a short survey and were given recommended investing profiles based on their risk profile. It was a basic experience and didn’t capture the complexities of people’s lives or goals. It also didn’t give people the ownership and flexibility that they wanted over their investments.

• A desire for hyper-personalization. The robo-advisor then invested your money for you and made trades based on your risk profile, but customers didn’t receive personalized communication or updates about why trades were made. The lack of insight into decisions caused distrust and uncertainty, firms failed to capture significant proportions of customers' investments which meant they failed to become sustainable.

• Technology wasn’t yet fit for purpose. If there was a chatbot, it would be basic and unhelpful. Most chatbots could respond to customer service questions with predetermined texts based on specific triggers but could not give insight into investments. There was little in the way of customization or a way for the robo-advisor to gain in-depth insight into customers’ needs or goals and adjust investments accordingly, beyond reissuing short surveys and adjusting risk profiles.

Could now be the time for a robo-advisor reboot?

The future of wealth and investments for the mass market lies at the intersection of:

• Responsibly offering customers the products they want.

• Delivering financial outcomes that enable customers to achieve their goals

• Providing an exceptional customer experience.

• Effectively leveraging the right technology to do all the above at the appropriate touchpoints efficiently and at scale.

Can GenAI make robo-advising feel like a premium service?

Wealth management is all about feeling like you’re receiving a premium personalized service with real human interaction. Robo-advice felt like the opposite.

When people are making big decisions about their future — like their retirement or their children’s education — they want to feel like they’re having a personal human conversation, because these are the decisions that keep them up at night.

GenAI has the potential to make these tools feel more like authentic human interaction and enhance the capabilities of wealth managers and financial advisors in building deeper relationships. This works if it’s done in the right way.

But there is still a need for human advice in the mass market.

People want different levels of human interaction and automated advice at different points in their lives. Each customer is unique, the key to getting it right is dialing up the human touch at the right moment in time.

How would that work?

1. Customer onboards to the app in a few simple steps using e-KYC.

2. Customers have a natural and conversational experience with an AI agent, instead of a static survey, and get an intelligent personalized financial plan and investment strategy, not just a basic risk profile.

3. Customers can set up multiple goals within the app that consider the different goals they have, the time horizons of each goal, the capacity for loss and their investment preferences.

4. Customers receive an easy-to-understand personalized investment update periodically as well as every time a trade is made, enabled by GenAI. Transparency on the performance of investments and the reasoning behind investment decisions increases trust in the robo-advice proposition.

5. Depending on a customer’s goals or changing life plans, they might choose to continue with their plan or speak to a human advisor. Human interaction is available at the click of a button.

6. That human advisor already has insight into the customer’s goals and challenges, as the AI has automatically constructed a summary for the advisor to provide context. It can also help the advisor to identify the next best action for the customer. This makes the advisor more efficient at their job and increases time for the things that matter, like building connections and trust with their customers.

By taking a hybrid approach, customers get the best of personalized, intelligent digital experiences coupled with the option of human support when they need it. This connected, customizable experience builds trust and increases the amount of money customers invest — ultimately leading to increased profitability for the robo-advice platform.

Here’s how to get started

We can help you reboot your robo-advice proposition and win back disappointed customers:

• Align your stakeholders. We’re committed to proof of concepts, but for them to be strategically accepted, we need the business engaged.

• Accelerate your robo-advice reboot. We’ll take you from art of the possible to POC, roadmap, and business case in six to eight weeks.

• Get the foundations right. We’ll help you get the basics right and build the data foundations needed to unlock the robo-advisor growth opportunity, while accelerating time to market through scalable cloud infrastructure and automation.