How robo-advisory can be applied to the world of investment advice

22 August 2017

The market for investment advice is changing rapidly, with robo-advice touted as one of the most disruptive forces to impact the industry. Daniel Meere, managing director at Axis Corporate, a management consulting firm, reflects on how robo-advisory can be applied to the complex world of investment services. 

Digitised and automated advisory services leverage advanced and more precise processes, algorithms and methods to assess client needs, building a more accurate picture of investment characteristics, uses and habits. In their report entitled “The evolution of private banking and wealth management resulting from digitisation”, Comarch and EFMA concluded that the personalisation of advisory services was the most important factor in digital advice, and was viewed as more important than the quality of the product itself.

The importance of offering the right product to the right person at the right time and place has become even more critical. By analysing clients activities and habits together, banks can better understand the needs of the clients they serve and match these needs with relevant offers which can extend far beyond the limited scope of traditional investment management services,” write the authors. 

In the banking sector, this changing client profile is something that Vietnam International Bank (VIB) among others consider the key challenge to which they must quickly respond in order to continue to meet their clients´ needs. In a report published by EFMA entitled ‘Retail Banking in Asia Pacific’, Warren Cammack, Strategy and Innovation Executive at Vietnam International Bank (VIB) comments: “We are about to launch a new service which will offer analysis of financial services needs via digital channels, enabling clients to gain a far better understanding of their needs and how VIB can help them to achieve their financial goals. Innovation is a key factor in VIB´s growth, and we see it as an integral part of providing the products and services to our customers to meet their needs. This enables us to focus our efforts on where our clients need them most. Launching our mobile banking app in 2015 was a major milestone for VIB. As a result we have seen solid growth in new clients as well as un uptick in satisfaction levels in our existing client base”.

The market for investment advice is changing rapidly

The market for investment advice is changing rapidly. Customers, used to having instant access to information on purchase decisions in all other aspects of their lives, are demanding this from financial services providers. With unregulated markets such as retail, FMCG and travel making ´nudge´ suggestions to stimulate interest from customers as they browse, the choice and information available is substantial. 

The financial services industry is yet to catch up, with many still offering a face-to-face personal wealth advisory service, or limited choice from a retail product set. Couple this with an ageing population that lives longer, the squeeze on pensions from both a funding and an investment perspective – this could well tilt the balance toward more automation, which would be augmented at higher asset levels with a personal relationship. 

With many banks abandoning the provision of financial advice to the mass affluent it is also providing a significant opportunity for new technology enabled players to enter the market.

Technology and robo-advisory

How can technology, which has enabled these other industries to improve customer education and experience, be applied to the complex world of investment advice? Is Robo-advisory approaching a tipping point? 

The wave of innovation in the financial services sector is often overplayed. Much of the so-called innovation amounts to little more than a slicker front end, or digitising a poor process, resulting in a still poor – but digitised – process. A proven model for evaluating technology change, and its impact on customer behaviour is a simple three-stage test. This asks three simple questions, which if answered as ´yes´ should indicate that the innovation is both valid and worthwhile.

Can robo-advisory be applied to the complex world of investment advice?

The first question is whether the customer will notice the change brought about by the innovation. In the case of robo-advisory, given that this is a customer-facing change and fundamentally transforms the process and the experience from one where the customer interacts face-to-face with another person, to one where they interact remotely with a programme, this is an emphatic ´yes´. Added to this, the pioneering nature of shifting what has always been a highly personalised, private and people-based interaction to a ´virtual´ interaction with a robo-advisory service marks a significant change for the customer that they are sure to notice.

The second question builds on noticing the change and asks whether the customer will value the change brought about by the innovation. The best answer to this is to assess the issues and drawbacks with the current advice experience. People looking for advice are often times poor, have a fear of the unknown and prefer not to share personal details with someone that they scarcely know. Using a robo-advisor can be far quicker, both in the time taken to receive the advice but also in the lead time to access the service. Being able to quickly fire up the service on demand, from your location of choice, rather than wait for an appointment,  may be important factors for those seeking advice. The fear of the unknown and uneasiness with sharing personal details may -with careful consideration to the educational approach and assurance around data protection- also be seen as easier to deal with via a robo advisory platform. 

The third question assesses whether the customer will pay for the innovation. This is a more challenging assessment, as one of the key obstacles to providing advice is the cost. Regulation such as Retail Distribution Review (RDR) in the UK have made advice charging more transparent, and less tied to products, but still the cost of personalised advice is prohibitive for most. This is also the area in which robo-advice has potentially most to offer. Using advanced analytics, machine learning, big data mining and mass customisation can offer highly personalised services at commodity prices. 

For robo-advisory to truly take hold, it may be the pricing model that becomes critical. As is often the case with disruptive innovation in financial services, the first to market addresses the underserved. As the un-advised begin to assess their financial futures, and the limitations of a dated face-to-face advice model are exposed, the market will open up to an innovative model that passes the three fundamental tests to deliver a faster, cheaper and better model for financial advice.


Four ways digitalisation is transforming car brands and dealers

16 April 2019

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”