Artificial Intelligence: A vision for the future
Richard Howes
15 December 2023There have been many pieces in blogs, the trade press and on LinkedIn about technological change in our industry, the recent publicity on ChatGPT heralded a raft of observations - some of it positive, but much of it negative – with concerns that we could be doomed and about to be superseded by robots.
The debates around machines and machine learning are perhaps gaining momentum now like never before. Its not new and to many extents its already here and we are all using it. Alan Turin who many see as the father of computer science asked 70 plus years ago, “can machines think”? This notion that machines will add to a dystopian world smacks of fear as opposed to what good can they do, there is a great book setting out the principles of Artificial intelligence from the Ladybird book series (which many older readers will remember) by Mike Wooldridge and is worth a read. When I say machines are already thinking for us, think of Goggle translate, originally developed by the US to translate Russian to English in the 80’s for obvious reasons, it now covers every language and we use it on our holidays!
It is without doubt though, that with the pace of technological change and the increasing power and reach of the biggest tech companies, that our business model(s) could get disrupted before they achieve what you, the owner, want it to.
This is one of the biggest issues you face I think as we go into 2024.
On one hand, it is logical if you have an established business to ignore any new entrants who seem to be entering the market and competing with low margins or give aways, and maybe in markets you don’t want to play in. However, ignoring this could lead to putting the handbrake on any future growth you may be looking for. Disruptors in business do not want you take action, given the growth they can achieve, meaning no one really sees them coming until it’s too late. Online businesses can grow exponentially; think of the scenario around multiples, 1 becomes 2, 2 becomes 4, 4 becomes 8, 8 becomes 16, until before long you are at 256 etc.
Supporting technology can advance your current business model’s delivery to existing customers, because in the main it lets you do what you currently do, but perhaps quicker - and dare I say, better. Disruptive technologies do something different for an unserved, or initially unprofitable, group of customers.
I have discussed before the concept of cashflow modelling which is accepted and used in the wealth management space, but could be easily adopted by mortgage advisers, with all types of clients, for example, involved in a Purchase, Re-mortgage for residential and BTL and Equity Release. To me this is sustaining innovations, allowing you to do what you do already, but better. Looking at the wealth management market shows how improvements can be made to the way advisers do their job, for example using cashflow modelling and wrap platforms, with new services also added. Those that adopted these areas can meet or exceed the performance expected from the clients they work with.
However, there is an argument that adding new services over and above this will realise no real benefits for the firm. The idea being that clients won’t pay more for things they don’t want or need, so adding to the existing service becomes a drain on profitability. I think it’s fair to assume in today’s world new entrants to a market will be digital, can operate under any market radar initially, yet can suddenly become a major threat as they gain traction. This is the well-trodden path of disruption.
While pure robo-advice hasn’t worked within and around the mainstream or specialist mortgage markets yet, it appears there are signs the existing players and any new entrants will soon start to gain traction. It might not be what you and I consider advice, but it’s a significant development and is opening up advice to other market segments who are often not served by existing financial planners, e.g. younger generations. Many commentators say artificial intelligence (AI) will never replace a human who can ask great questions, listen with empathy and guide or coach people to making better decisions.
There is an argument that advisers are not trying to compete against these players in a direct sense, but the challenge to a business is to stay relevant, and to create businesses that can survive and thrive for the next 20 years, regardless of what developments challenge the status quo. So what if you have an established business can you do?
Perhaps you can develop the disruptive technology with the ‘right’ customers. Not necessarily your current customer set who are used to you advising, being visible, providing a unique and very personalised service, but one which means finding ways to work with the next generations of clients; millennials and Gen Z, who may require something different. Adopting huge amounts of technology into your existing business which can take away your personalised service is akin to putting a square peg into a round hole, it doesn’t work.
Place the disruptive technology into a separate entity that can be rewarded with initial wins and a very defined customer profile. Starting with a blank piece of paper, (I know paper!), conduct some research and listen to the next generation about what’s important to them personally as well as financially. A lot of research has already been done on these areas that you can also draw upon, for example the recent AMI Protection Viewpoint report gives insights that can be applied to the mortgage market also.
Why not, select some younger team members to set up as a separate business and task them with creating a financial planning firm for their friends, peers, contacts who are likely to be of a similar age, with a similar outlook, and similar expectations on customer service and outcomes.
Maybe provide some capital, perhaps using your Paradigm profit share?
By keeping it small they can ‘tap dance’ around issues and problems as often as necessary, develop their own values and processes outside of your main organisation, and run a larger variety of experiments to find where the real needs of their clients are and to craft a solution that can work commercially in serving that need.
This is something we are talking a lot about in Paradigm with our member firms and we would be delighted to have a conversation around these areas and ideas, if it appeals, please get in touch. We can’t predict the future, but we can have a real go at trying to figure out pathways for business success and looking at relevant models in other markets to ensure your continued success.
