It is sometimes salutary to read the thoughts of Australians on the UK. They address complex ideas simply and their view of the UK is rarely “rose tinted”.
In a recent article, Laura Dew, a British journalist living in Australia delivers a message to Australians about how we are getting on with “digital advice”. It reinforces my impression that “advice” is what people with money buy to outsource the problems created by wealth.
Most of us take important financial decisions without very much advice. When I took decisions about when and how to start taking my pension, I had to work out whether cash commutation was a good or bad deal, whether taking early retirement was in my interests or whether I should draw down from my DC pot for a few years. I had to think about my state pension and I also had to think about my mortgage and how I would repay it. Tax haunted every step of the decision making process.
Like many people, decisions I took about pension taxation, especially around the Lifetime Allowance, turned out to be totally wrong. How can you anticipate a Budget Autumn Statement many years hence? There were no optimal decisions for me at the time, only best guesses.
All these things were weighted up, researched and decisions taken with the help of my partner and a couple of other friends. The only digital assistance I got was from a calculator. In truth, even if I had the artificial intelligence culled from millions of people like me, the decisions I took would be mine – even as they touched those around me.
I now face more decisions, around the state pension , the redemption of my mortgage and most importantly, how I balance work and pensions as I move through my sixties. To expect my calculator to take those decisions for me is to expect a lot. I would love to put my problems to some higher “artificial” intelligence as I suspect we all would, I remain interested in the question in the title and would like the answer to be “yes”. So far, the answer for me has been “only a little”.
Has the UK been successful with digital advice?
Coming back to Laura Drew’s article in Money Marketing (Australia), I can see why digital advice as it has been conceived and marketed in the UK , has made no impression on my life or that of any of the people close to me.
Laura has been speaking to those involved in digital advice in London because the Australian
Minister for Financial Services, Stephen Jones, encourages Australia to embrace it. The number of advisers is at around 15,000, and Jones’ reforms in the Delivering Better Financial Outcomes legislation are hoping advice from banks and superannuation funds as well as digital advice will be able to bridge the gap.
Sounds familiar.
What also sounds familiar is that digital advice is not about the tough decisions that people face at retirement but “wealth optimisation”.
Like Australia, there is hope that digital advice will improve the situation – UK robo-adviser Nutmeg launched as far back as 2012 and Wealthify was launched in 2016 – but Hore said they have struggled to make money. Both providers have since been acquired: Wealthify by Aviva in 2017 and Nutmeg by JP Morgan in 2022.
Robo advice – digital advice and now AI driven advice are appealing in concept and appealing to those looking to invest in the future of wealth management but not very appealing to the kind of problems people face in later life.
Guiide and Destination Retirement, examples of the digital decision trees that were conceived at the time of stakeholder pensions, are aimed much more at the general market of savers looking for answers to difficult problems about later life financial decisions.
The difficulty that persists is that these decision trees lead to investment pathways which aren’t particularly appealing. Even at the current elevated rates, annuities do not appear a particularly good way of turning pot to pension and most people find the rules of thumb surrounding drawdown to be too uncertain to base lifetime decisions on. The prospect of having cash in the bank, rather than in the hands of trustees, insurers and IFAs, is appealing, if only because we are fairly certain banks about the outcomes of bank deposits.
Laura Drew article concludes with Iress’ Alex Hore confirming that people need people.
“Good technology can certainly lower the cost and the complexity, and London is a global hub for fintech so it provides that innovation and competition that we need.
“We have invested in a hybrid solution as nine out of 10 people want to talk to a person, and we have also invested in our support team as people want help from a person not from an AI chatbot. That is a simple staple that can be introduced.”
In my case, I found my way through the maze of decisions I had to take because
- I have 40 years experience in financial services
- Most of the people I know , know about pensions
- I am university educated and know a little maths
But how we expect most people who aren’t blessed/cursed with the above, to make sensible decisions of the complexity that I encountered is another thing.
The reality for most people is decidedly sub-optimal, When you consider the amount of time and effort that is put into the accumulation of the pots and pensions we build up for retirement, that is extraordinary.
I suspect that the Ministers for Financial Services in Australia and Great Britain , probably think the same. The convenient assumption that digital/artificial advice can solve the bigger issues of later life finance, is too easy an answer.
Thanks to the team at Optima pensions for bringing the article to my attention and turning my thoughts again to the thorny issues of the Retirement Income Covenant.
I suspect that the answers we come up with will stem from our finding a common purpose for what we are doing (as the Australians have done). Only when we get to a point of agreement on what we are trying to do, can we find the way to do it!
