Overview

Deloitte recently concluded a primary research project to help answer this question. We examined the potential for automated advice to grow in the UK over the next decade, across the following six markets:

1. Simple financial planning
2. Investing
3. Defined contribution pension saving
4. At-retirement
5. Mortgages
6. Individual protection

The research included discussions with key players and start-ups as well as a Deloitte survey of over 2,000 consumers.

Overall, we believe the UK offers a rich opportunity for automated advice, with up to 15 million consumers willing to pay for it. Our report:

• explores this opportunity as well as the regulatory and commercial challenges, overall and for each market;
• examines how automated financial advice will evolve over the next decade and the implications for different types of market player; and
• highlights key considerations you will need to succeed in this evolving digital world.

The opportunity

To date, automated advice has been most prevalent in wealth management, which we believe will remain fertile ground for innovation, given the increased need for higher net returns from savings in a low interest rate environment. However, the low cost, high convenience and consistency of automated advice will drive adoption into other large markets. In particular, we believe adoption will be highest where there is a significant unmet need for advice, such as retirement products, and those which are heavily intermediated but often have inefficient customer-facing processes, such as mortgages.

Key challenges

• Low consumer financial literacy and engagement are the key demand barriers preventing automated advice from reaching its full potential.
• High customer acquisition costs, low fees driving thin margins, incumbent fears of customer switching into lower margin products are the key supply barriers.
• Regulatory risk and uncertainty including determining which services are regulated, effective customer communications and the design and oversight of algorithms.

Implications for market players

We believe incumbents have an advantage due to their existing scale, brands and access to customers. Incumbents that proactively exploit this opportunity, disrupting markets even at the risk of some customers switching to lower margin products, will shape, rather than risk being bystanders to, the future of their industry.

Start-ups, however, have a variety of opportunities in both services provided to other businesses and D2C. Their advantages in technology, focus, and nimbleness enable them to build more engaging customer interfaces and adapt faster to changing markets. Due to the high hurdle of customer acquisition costs, we believe their key opportunity initially will be to offer white label solutions to bigger players.

How to navigate the report

This report is divided into two parts:

• Part 1 explores what is meant by ‘automated advice’, provides an overview of the UK automated advice market, and assesses the regulatory challenges.
• Part 2 discusses the opportunities arising from automated advice, the barriers and the implications for industry players across the six individual markets and draws out our key questions for firms and overall conclusions.