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Would you listen to a website to decide what to do with your pension? Not enough of us would to make this a solution for the pensions advice gap, it seems.
Last week, the Financial Conduct Authority presented research findings which suggested that robo-advice has a way to go before it is embraced by the majority of consumers. It found a hard core of ‘robo refusers’ of nearly a third of the survey group, consisting predominantly of older, male, less literate consumers, who might be most in need of advice.
But even among younger test participants, there was a divide between people depending on their socio-economic background, as those who are more advantaged might also be more comfortable with technology and intermediaries.
What does this mean for the pensions world, where hopes were once pinned on low-cost robo-advice to plug the gaping advice gap, especially for those with smaller pots?
Time and trust
Jon Dean, head of retirement strategy at consulting firm Altus, is not surprised by the FCA’s findings, but still sees a role for robo.
“It's going to take a lot of time to get real traction on it,” he said. The FCA found that there is a strong correlation between accepting robo-advice and trusting corporations generally: those with high trust in large corporations accepted robo-advice in 70% of cases, while those with low trust in corporations only did so in 35% of cases.
Dean said the trust factor is a difficult one to conquer. “In the financial crisis everyone took a big hit, and it hasn’t really recovered from there,” he said, with scandals becoming a regular occurrence; Woodford and SJP are just the latest ones. “I wonder if there will be a sustained period where nothing bad happens,” said Dean.
In the pensions space, scams have made it harder for robo-advice to gain people’s trust, he believes; people prefer to meet an actual person, in part to assess their trustworthiness.
This human factor might need to be a part of future digital offerings. Hybrid solutions, with a digitally supported, face-to-face journey “seems to be more successful”, he argues, as are solutions promoted through the workplace.
Jonathan Watts-Lay, director at adviser Wealth at Work, is of the same view. Wealth at Work are planning to launch such a hybrid solution next year, which will offer guidance rather than regulated advice and will be available to individuals who have already come into contact with Wealth at Work through their employer. The product will initially only focus on ISAs before including pensions.
He notes that what people mean when they say ‘robo-advice’ is not always regulated advice, arguing that while building an algorithm for regulated pensions advice is possible technically, in reality it would take consumers too long to go through it, as retirement is a complex area.
Is technology only for the young?
Watts-Lay does not see a problem with offering robo guidance to old and young alike. “This premise that people have grown up with mobile phones and it will all be different, when you talk about complex processes our evidence is still that people want to talk to people,” regardless of age, he claimed, calling the idea that older people are averse to technology “nonsense”.
“The problem isn’t their ability to use a computer, the issue they have is if they’re making a big decision, they want to talk to somebody,” he added.
That old and young seek reassurance through speaking to another human is acknowledged even by providers of robo-advice themselves. Robo-adviser and wealth manager Nutmeg added human advisers to its digital offering last year.
“We did find a similar thing from our customers that the FCA report highlighted, that some people just don’t trust the regime and want to talk to a person,” said Nutmeg’s head of financial advice, Lisa Caplan, because some people “are comforted” by the human factor.
The average age of Nutmeg users is 39, but there is a wide age spectrum, she noted. Pensions is a fast-growing part of the business, she said, as it’s not well understood, especially the taxation of it. “What people really want is a view of their finances in context, what they have, what that means, a sort of planning service,” with someone interpreting the figures for them in understandable language.
Unlike the FCA findings, Romi Savova, CEO of pensions consolidation service PensionBee, said according to the firm’s consumer data it is not the characteristics of the consumers themselves that predetermine how receptive they are to online services, but whether it addresses a problem they have.
“What we see in our data set in terms of receptibility to online services is, it really depends on what kind of problem you want to solve. Consumers come to us to combine their pension. It impacts people aged 30-50, who have had a few jobs, who need to combine their pensions to view them in one place,” she said.
But increasingly, over-55s using the service, she added, because “when it comes to drawing down it’s also valuable to combine your pensions because you can see how much you have left”.
Would you like to have a deep conversation with a chat bot?
But Charles Goodman, employee benefits director at consultancy Cervello for Business, thinks although old people are perfectly capable of using technology, it will find more fertile ground in young, busy people.
With age, people will want to take a closer look at their finances – and speak to someone about it. "As we begin to really explore financial wellbeing, I wonder if robo advice will be enough to assist us through our relationship with money and how to make sure it provides us with happiness,” said Goodman.
“I'm not sure I would want to be having deep and meaningful conversations with a chat bot. It seems to me the businesses that are on the right lines are those that combine robo-advice to do the process driven side with advisers to guide people to a better relationship with their finances.”
Whether such hybrid solutions will be accessible and affordable for the majority and plug the advice gap is however not clear. ‘Pure’ robo-advice remains the cheapest solution, it might however not be the panacea some had hoped only a few years ago.