Julian Wells (pictured) is director of Whitecap Consulting
Artificial Intelligence (AI) is a hot topic in all industries but robo-advice has been increasingly high profile in the mortgage market over recent months, not least due to some significant fundraising by several digital/robo-advisers. If you were to judge by headlines alone, you’d be forgiven for thinking that the days of the traditional mortgage adviser are numbered, but the reality is quite different… for now anyway.
Robo-advice has certainly got the attention of industry players in the intermediary mortgage market but, perhaps unsurprisingly, many mortgage advisers are sceptical of the technology that has the potential to put them out of a job. Others will no doubt see it as a threat but also an opportunity to improve efficiency and profitability.
According to research by Legal & General Mortgage Club, more than a third of brokers see the growth of robo-advice as a threat to their business. Nearly four out of 10 brokers (38%) see the rise of robo-advice as the biggest threat to their business in the next three years.
What many will find surprising is that the number of people who took out a mortgage via a 100% digital adviser/robo-adviser is zero. Despite all the PR headlines about AI, robo-advice and digital mortgage advisers, it’s not currently possible to complete the mortgage advice process without speaking to a professionally qualified human adviser.
The closest model to a true robo-adviser currently appears to be Mortgage Gym, because the website itself is authorised to give advice, which the user will receive before they come into contact with a broker. But they will still need to deal with a human to complete the process.
Some industry commentators feel the term robo-advice is in fact quite a new word for something that has been around for some time. “Insurance comparison websites have been giving out ‘robo-advice’ for years. Consumers enter all their information online and a few seconds later the ‘robot’, or actually algorithm, provides options that meet their needs” – Mark Lofthouse, chief executive, Mortgage Brain.
The current reality of robo-advice in mortgages is that it is a hybrid proposition. Customers still have to speak to a qualified mortgage adviser in order to confirm acceptance of the mortgage advice from the digital adviser. This hybrid use of technology and human input may be enhancing the traditional advice process by driving efficiency and profit, but it is not replacing it.
What do the customers want?
There is evidence to support arguments for and against robo-advice. Digital calculators and comparison sites are widely used and relied upon in the early stages of mortgage enquiries, but it appears there is some scepticism when it comes to going past simply accessing information to following financial advice/suggestions.
A 2016 Deloitte report found the two most cited reasons against robo-advice (by around a third of respondents) are a lack of trust in a digital solution, as well as an unwillingness to pay. This is unsurprising given that these services do not yet exist at any substantial scale. In addition, the unwillingness to pay is also evidenced by the existence of an ‘advice gap’, whereby people unable to get advice at a price they are willing to pay.
A significant number of respondents said they would find it easier to speak to an adviser than use a website, implying that building easy-to-use customer interfaces is key to success.
Research conducted by Accenture for the CML found that two-thirds of customers would prefer to speak to an adviser about complex products. Handling more complex borrower requirements has long been a challenge faced by the mortgage sourcing software providers, so it’s no surprise that it will also be an obstacle to robo-advice firms.
Hybrid models involving a combination of digital and human adviser are likely to remain prevalent in certain markets (e.g. lending into retirement and lifetime mortgages) because they can ensure safeguards to the suitability of advice.
Interestingly, Deloitte’s research found that demand for robo-advice is high among consumers in their early forties, not just millennials and that demand also rises with income.
The robo-advice opportunity – today and tomorrow
More automation in the mortgage advice and application processes could clearly unlock significant efficiences, with lenders and borrowers benefiting from smoother, faster and and more accurate processing of applications.
The immediate opportunity for mortgage advisers is to develop a front end digital offering – something which does not need to involve ground breaking technology. A basic data capture with a polished interface is an intriguing way to get possible customers engaging with mortgage information, without having to speak to someone. This is less about robo-advice, more an opportunity for lead generation and value creation. Lenders can capitalise on these front end benefits too.
Looking further ahead, as consumers get more comfortable submitting and receiving information through a digital interface, we will edge closer to the ability to conduct and advise mortgage transaction fully through a digital platform. If the market is moving in this direction, then in the shorter term, advisers and lenders alike will of course be looking towards increasingly digital propositions.
As our colleagues from the retail banking, lending, investments, and insurance sectors will be happy to testify, today’s customers want to be more in control of the processes around their finances. So whilst robo-advice may be able to genuinely drive profitability, efficiency and value, it may also transpire that a digital solution is what customers actually want.