The race to become the 'Uber of banking' is on and financial services organisations may soon face competition from external disrupters that aren't among their traditional competitors. Treating robo-advice as a passing fad is no longer a viable strategy.
The term robo-advice is used to describe the growing field of online investment and savings platforms that reduce the need for human advice.
Initially, it was seen as a threat to only the lower end of the retail investor market, but that perception is changing.
Just as block chain technology, the software that underpins the digital currency bitcoin, threatens the core business of clearing houses and stock exchanges, robo-advisors have the potential to replace even personal, tailored advice.
The upper-end of the financial advice market that services high net worth individuals and wholesale fund managers is not currently under threat, but it's only a matter of time.
The evolution of robo-advice already allows for more complex investor scenarios and investment products. As with any disruptive technology, there will be winners and losers.
Robo-advice has already democratised investing for an entire class of consumers who previously had little access to financial advice.
For this sector of the market the services of an independent financial advisor are out of reach. They are trapped in what we call the 'advice gap'- they need advice but can't afford it.
Lower net worth individuals now have access to sound advice, with access to a variety of previously unconsidered investment products.
Robo-advice has no doubt helped many people create more resilient investments through better diversification, with proper consideration given to both risk and return. It can also empower investors to take a more active role in managing their own wealth.
While many advisors see it as a threat, they might have a lot to gain. Robo-advice platforms bring an opportunity to access previously untapped markets and could provide a gateway to providing advice to the younger generation who are extremely comfortable with online services.
But there is a big question that needs to be asked. What is the appropriate regulatory response to quickly-evolving technologies like robo-advice? You only need to look back to the stock market crash of1987, when trading in certain stocks could not be stopped and spiralled out of control, to see an example of technology in the sector gone wrong.
It's certainly not difficult to imagine robo-advice platforms designed to steer investment inparticular products that are not necessarily in the client's best interest. The other difficulty will be getting investors to diversify into unfamiliar investment products and change bad habits.
In many ways the most important response to the threat of disruptive technology will be an all-out effort to restore investor trust and confidence.
The real challenge for the financial services industry is going to be changing the value proposition it offers. First and foremost, advisors must place greater emphasis on client needs, emphasising the human connection, and providing oversight of technological platforms.
Sadly, the move to robo-advice, to some extent, underscores a general dissatisfaction with the financial services sector.
Every additional example of misbehaviour only serves to further erode trust and confidence in the sector, making robo-advisors all the more attractive.
Brand profile will play an increasingly important role in resilience to the robo-advisor threat. Investors will look for a trusted brand, able to provide the human interface to robo-advice, with the full knowledge that their best interests are being served.
In many ways the most important response to the threat of disruptive technology will be an all-out effort to restore investor trust and confidence. All investors really want is to know that robo-advisors, human advisors or a combination of both, are at all times providing them with independent, transparent and appropriate advice.