The scope of automation in South Africa's financial advisory sector

12 November 2018 4 min. read

While financial and investment advice across the globe is increasingly gravitating towards the automated sphere, the financial advisory market in South African remains too small for players to consider automated advice solutions, according to a new report from global professional services firm Deloitte. 

Much like most other sectors, the advent of Industy 4.0 technology has forced the profession of financial advisory services into a period of evolution. Traditionally, the discipline included services such as advice on investments, portfolio customisation and rebalancing and investment decisions informed by tax considerations. 

With the advancement of automated technology, most of these services can now better be performed by artificial intelligence. According to a new report by Big Four accounting and advisory firm Deloitte, this has opened up avenues for a new form of financial advisory, one that is more in tandem with offering advice on “healthy financial behaviour.”

Different degrees of automated financial advice

However, not all economies are in a position to facilitate this evolution in the discipline. South Africa, for instance, despite having one of the fastest growing Fintech markets across the globe, currently lacks the resources in its financial advisory sector to spend on automating its operations.

Deloitte recommends a number of measures to help improve this scenario and help some of the smaller enterprises in South Africa with automation. Firstly, the firm recommends the formation of strategic partnerships with global players in the financial advisory sector that have a sizeable resource pool.

The broad customer base and ready finances available at large international firms will make automation a more feasible endeavor. The second recommendation is to engage in customer aggregation in order to target a broader pool of investors.

Use of advice on product purchases

Thirdly, the firm suggests the development of products that “cater to currently unviable mass market consumers.” An example of such an unviable market are the Stockvels in South Africa, which are essentially credit unions or saving schemes comprised of dozens of investors.

Lastly, the firm advocates the leveraging of available technology such as chat bots and other AI-based implements to reduce the overall costs of onboarding automated financial advisory services. Automation of financial advice itself can be implemented to varying degrees in combination with human interaction.

The most minimal degree is the offering of financial advice in a face-to-face scenario, while bing assisted by an algorithm that will generate the required advice and investment decisions. In such a scenario, the human advisor can operate with his own discretion about how much automated advice to take into consideration.

Why financial advisers were used

The second degree is a hybrid form of financial advice, which involves customer interaction on a web portal, with the additional option of interacting with a human via an online video or chat service. This can be useful for customers that are comfortbale with automated advice on the whole but might have additional questions.

The most advanced degree of automation is complete automation, wherein all advice is obtained through interaction with a website and human interaction is reserved purely for the resolution of technical difficulties and to lodge complaints. The varying degrees allow for firms to automate their operations based on cost and customer considerations.

A survey from Deloitte of the consumer preferences in South Africa revealed that 90% of the people belonging to the income bracket exceeding R400,000 annually sought financial advice in some form or the other. Most of these investors prefer to obtain their advice from an independent financial advisor in the current scenario.