The future of advice

These days we are not short of headlines warning of the impacts of technological disruption in the advice industry. There is no escaping the fact that technology has created less costly ways to deliver advice with a broader reach.

Many of the foundational tools of financial planning, such as rebalancing and portfolio construction, can now done by algorithms in a more efficient, scalable manner.

Many of the foundational tools of financial planning, such as rebalancing and portfolio construction, can now be done by algorithms in a more efficient, scalable manner. Some have gone so far as to predict so-called "robo-advice" propositions will spell the end of human financial advisers.

We could choose to buy into the doom-and-gloom, seeing technology as a threat and automation taking away jobs. However, there is another choice. We can instead choose to see technology as an opportunity, embracing the automation it brings. Why risk becoming Blockbuster if you can choose to be Netflix? Far from being automated away, at Vanguard we believe the job of an adviser is very much here to stay. However, the day-to-day tasks an adviser performs are likely to change. This has implications for the future of the traditional advice model.

Vanguard has conducted extensive research into the advice market in the US, leading to a number of publications in 2017 and 2018, including The Evolution of Adviser's Alpha: From Portfolios to People which is currently available in the UK. We have now leveraged this experience to conduct a major study, the Vanguard UK Adviser-Client Survey. We have directly interviewed 300 practising advisers and wealth managers, and 1,000 advised clients, focusing on what advice in the future will look like in the UK.

Our starting point is to step back and look at the future of jobs in general. Our research into the impact of technology on jobs suggests the tasks most likely to be automated away are those that are basic and repetitive in nature1. On the other hand, "advanced" tasks – those that rely on things like creativity, strategising, and maintaining relationships – are uniquely human and tend to be much more resilient to automation.

While we cannot predict what technology will look like in the future, if other industries are any guide we can feel confident that the way advisers can add value will change. Routine tasks will likely be automated away, leaving only those tasks that can be considered uniquely human.

One example of a uniquely human task advisers perform is behavioural coaching. While often overlooked, there is significant value in providing a client with peace of mind.

Acting as a behavioural coach, advisers can prevent clients taking on excessive risk, chasing returns and generally making decisions that harm their chances of investment success.

However, it will be hard to prevent a client from selling out in the heat of a financial crisis if it is the first time you are having that conversation. Behavioural coaching is only effective if clients are prepared in advance for the challenges that may come their way and, as the responses of our US Advised Investor Insights survey show, have trust in the relationship.

Vanguard chart

Source: Vanguard

Not all advice can be automated

So, what determines trust? Interestingly, more than half of survey respondents placed the most weight on drivers of trust that are emotional in nature. Clients selected "being the client's advocate" and "acting in the client's best interest" as the most important drivers. While the functional and ethical aspects (in short, what advisers do and how they do it) are still essential, it was surprising to find that emotions play a greater role than both of those combined.

Unfortunately there is no shortcut to building trust. Trust is built over time. Indeed, our research found higher levels of trust were associated with longer relationships, while a perceived lack of attention and time was the main motivation for switching advisers. Our US survey suggests clients want what automation cannot provide – a relationship.

Redefining their value proposition to one of holistic wealth management, advisers will be best placed to compete with the challenges automation may bring. For US investors, in a world where time is of increasingly short supply, finding ways to spend more time with clients will be paramount for success.

We are interested to see if this translates across the pond. What do UK investors value in an adviser-client relationship? Trust means different things to different people – will it look different for UK investors compared to their US counterparts? Do they place the same value on the emotional aspects? This summer we have set out to try and answer these questions and more, conducting a survey focused on UK advisers and advised-investors.

Preliminary findings from the advisers and investors surveyed so far here in the UK appear to suggest similarities. As one client put it, "I want a close relationship, but I don't want my IFA to be a friend... they need to be a trusted professional, like a GP". While the ideal relationship may not be radically different to what is currently on offer, initial responses indicate clients are looking for more empathy and proactivity in their partnerships. However, this will be easier said than done. As one adviser we interviewed said, "There is no manual for how to ask life questions...".

Nor is there any manual for succeeding in a world of increasing automation. We hope, however, that the findings of our survey can at least help point advisers in the right direction. We'll be sharing our findings at our Adviser Symposiums this autumn (see We hope you can join us.

  1. See The Evolution of Adviser’s Alpha: From Portfolios to People for a more in depth examination of this topic.]

Investment risk Information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Past performance is not a reliable indicator of future results.

Important Information

This document is directed at professional investors in the UK only, and should not be distributed to or relied upon by retail investors. It is for educational purposes only and is not a recommendation or solicitation to buy or sell investments. The information in this document does not constitute legal, tax or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions. Issued by Vanguard Asset Management Limited which is authorised and regulated in the UK by the Financial Conduct Authority.