UNI Europa Finance (UEF) agrees with the characteristics of automated advice tools presented throughout the paper.
UNI Europa Finance is the European-level trade union body for the finance sector. It represents 100 unions with 1.5 million workers in the banking and insurance industries. It is part of UNI Global Union and recognised by the European Union as a social partner. UNI Europa Finance is also part of UNI Europa, representing 7 million workers in the services and communication sectors. UNI Europa is member of the ETUC.
Example from the Austrian banking sector:
‘At the moment, our bank uses real automated financial advice only for the employees, in order to enhance or standardize their advice to the customer. There are a lot of electronic systems that lead the employee to ask the right questions and the system will then provide e.g. what kind of investment a customer should do – bonds, shares, etc., but also suggests a specific product. The teller must choose from the suggested products and may not sell a different product without written explanation.
The customers however have only very basic automated financial advice systems at hand. On our website there are the groups of products, and within them the customer can answer 2-5 questions and then gets a recommendation for the type of product. These recommendations however only work for our standardized product range.
In the future I suppose that the automated financial advice systems that are now used for our employees will also be available for the customers.’
In UEFs opinion, the added value that automation brings to the sales of products in the three categories is accurately portrayed. However, it is important to keep in mind that not everyone in the public are sufficiently IT literate to be able to draw on the full benefits that automation of advice and sales can present. While this segment will continue to grow smaller year by year, it is still too early to not include this in considerations. While UEF also recognizes that some segments of consumers finds the experience of consulting a human financial advisor novel and possibly intimidating, a recent Swedish study shows that even young people who are eager to use automated financial services want to consult an advisor face to face when making important financial decisions (either via video or in person). This in a country that is a front-runner in digitalisation. Therefore, UEF has reason to believe that motivation to act upon financial matters may not entirely correlate with the supply of automated financial advisor tools, and certainly not when it comes to bigger financial decisions. The effect could be the opposite, in that consumers might feel less motivated to engage if the possibility of consulting a human advisor declines.
In addition, UEF would also like to point out, that not all advice can be pre-programmed. While most foreseeable situations can be organised in flow-charts to be followed by a program, human advisors are able to also reply to and follow up on somewhat unrelated questions that can come up during the consultation/sales situation. This could have a negative impact on the quality of the advice and information provided and be to the detriment of consumers.
UEF agrees to some extent with the potential benefits to financial institutions described, but would like to emphasize that the descriptions are highly speculative. For example, the quality of service may increase as described in section 43, but it may also decrease or remain unchanged for some consumers. What the consumer perceives as high quality of service is highly individual. Other variables than time and quality of the product is weighed in when it comes to the quality of service, and social skills and knowledge of consumer needs and preferences may play in. A recent study on the Danish bank sector shows that service quality is more important than the product when it comes to happy customers . Ideally, of course, the consumer should be provided with both. However, UEF recognizes that there is an increasing demand for automated financial solutions, such as automated financial advice tools, and that it’s a good thing that the financial institutions see to the consumers’ demand.
UEF would also like to highlight that it is not an absolute truth that it may be more cost effective for financial institutions to provide advice through automated tools instead of through a human advisor. It all comes down to the consumers’ needs and demands. If the consumer does not feel comfortable with using automated financial advice tools or if their trust in the capability of the tool is low, it may be more expensive for the financial institution in the long run since it is possible that the consumer will choose to take their business elsewhere. Therefore, it may be more cost effective for financial institutions to diversify their business, e.g. provide advice trough both automated tools and human advisors.
Regarding possible layoffs due to increased automation, it is important to highlight the cost of lacking human capital in the long run, since the financial institution will lose the cumulated knowledge and experience of the employees that cannot be obtained in other ways.
Furthermore it should at this point be mentioned, that increased automation in the sector is not always a guarantee for a progressive sector. A recent study from the Norwegian Finansforbundet pointed to the fact that automation in the banking sector often is used to handle the repetitive tasks employees are happy to dispense with. However, many of these tasks are still in existence because the banks still operate outdated IT systems that cannot be easily streamlined. So in some cases the banks prefer to use robots to fix a somewhat broken system, rather than spend the money on acquiring contemporary IT systems that would not require as high a level of automation to handle repetitive tasks.
If the automated financial advice tools mainly used are half-automated tools, e.g. with human interaction, they could ease the work of the employee and optimise customer service and experience. The human advisors could then be given the opportunity to focus on sales, customer relations and advice instead of collection and analysis of personal data etc. This will increase the effectiveness and therefore the profit of the institution. This is especially the case in some insurance companies, where customers by phone are led through the initial stages of buying products by an automated service, with the human advisor brought into the call when the service encounters a question it cannot answer or reaches a certain stages of the sale.
UEF agrees with the potential risks described.
In banking, there is risk that overreliance on digital credit granting could result in soft information, resulting from local proximity, not being taken into account. This could result in local needs not being served any more. See in this respect, the comment by FED Chairman Bernanke, Feb 16, 2012
“The Role of Community Banks in a Challenging Economy
Although community banks provide a wide range of services for their customers, their primary activities revolve around the traditional banking model--specifically, taking short-term deposits to fund longer-term investments, such as small business, agricultural, or commercial real estate loans. Accordingly, risks at community banks tend to arise from their lending, in the form of credit risk, interest rate risk, or concentration risk, rather than from the trading, market-making, and investment banking activities associated with the largest banks. However, by taking on and managing the risks of local lending, which larger banks may be unwilling or unable to do, community banks help keep their local economies vibrant and growing. Importantly, community banks are well positioned to go beyond the standardized credit models used by larger banks and consider a range of factors when making credit decisions. In particular, they often respond with greater agility to lending requests than their national competitors because of their detailed knowledge of the needs of their customers and their close ties to the communities they serve.”
As far as digital advice in the sphere of asset management is concerned, UEF would like to point at two risks.
- Advice through the internet expands the scope for cross-border competition. For this reason, it is important that there is proper supervision in all member-states. In this respect, we call for supervisory convergence on automation in financial advice;
- There is a risk that investors are overconfident in their skills to make investment decisions or, alternatively, overconfident in advice being given by those that are not subject to MiFiD II, i.e. journalists. In this respect, it should be monitored that internet investment platforms do not have as side-effect that “execution-only” increases.
UEF sees the following risks concerning the issue of choice, both for consumers and to employees:
Quality customer service:
Customers may not necessarily always want to digitalise their business with their financial services provider. They might prefer face-to-face advice and should not be pushed into automatizing their insurance or banking services if they do not wish to do so. Some customers might prefer digital advice only as a complementary service to personal advice. Customer needs and expectations may vary significantly across markets, too. Face-to-face advice will continually add further service value to customers beyond what digital services alone could offer. By focusing on customer needs and satisfaction, personal advice should be an essential service in the digitalised financial sectors in order to ensure competiveness.
In the context of investment advice, we are particularly concerned for lower income groups. There is a risk of a dual market developing, with investment advisors being available for those who can afford paying for them and others being left with no possibility for face-to-face advice.
Advising customers or clicking “OK” on the screen?
On the other side, employees must be up to speed in advising the customer considering the full complexity of their financial situation and individual needs. This requires a good knowledge of the products as well as social and sales skills.
Trade unions see a certain danger of employees of companies providing financial services being reduced from highly educated advisors to clicking simple options like OK, Yes or No in pre-programmed IT tools. Auto-calculating tools take away their role as an active advisor and are based on profit-maximizing algorithms only. This might not benefit the real needs of the consumer.
In an ideal world, automatization can ease the work of the employee and optimise customer service. The dark side of this practice is that customers and employees alike are being robbed of their own judgement and of the possibility of finding tailor made solutions. It can also mean a loss of control as well as a loss of expertise of employees, which on the long run means a deterioration of consumer advice.
See also q 15.
The insurance sector may be particularly sensitive as far as the protection of their clients’ data is concerned. Sensitive personal data and personal financial and medical information are processed and intentionally used for calculations. These data need to be highly protected and not used for any business practices that could potentially harm consumer rights or cause discrimination.
Media reports about plans for measuring the personal fitness, weight or other medical parameters, using mobile devices, in order to ban clients from certain products make consumer protection alarm bells ring.
With the huge amount of personal and private information that (potential) customers reveal online on social media, they give away information about their lives which insurance companies might find very useful. Has somebody bought a new car? Does somebody engage in a very risky sport? Is somebody getting married? A scenario in which insurance companie’s employees are required to trace Facebook, Twitter or other social media accounts of their clients on order to get more information on their lives - and thus their potential insurance needs – is certainly not desirable.
In UEF’s view, risk no. 15 as described in section 82, is not to be considered as a risk. On the contrary: A variety of advice options would even increase competitiveness and attract a broader clientele.
Customers may not necessarily always want to use automatized services only. They might prefer face to face or at least over the phone advice and should not be pushed into automatising their insurance or banking services if they do not wish to do so. Some customers might prefer digital advice only as a complementary service to personal advice. Customer needs and expectations may vary significantly across markets, too. Face-to-face advice will continually add further service value to customers beyond what digital services alone could offer. By focusing on customer needs and satisfaction, personal advice should be an essential service in the digitalised financial sectors in order to ensure competiveness.
There is a risk of overconfidence in questionnaire and statistical models in the originations of credits. There are some indications that proximity to the client and local visibility may contribute to the soundness of the credit origination process (=> better credit quality), as proximity provides soft information. As such, there is a risk that overreliance on digital credit origination could increase the risk on bad loans.
UEF, representing the interests of 1,5 Million workers in banking and insurance, believes that employees who use digital devices or automatized tools for their work must never be liable for shortcomings in protection of third parties’ data by their employer. Neither must they be made liable for any shortcomings that caused damage or detriment to consumers.
Both the insurance and bank sector employs a high percentage of women while the IT sector suffers from a huge gender gap, with women being underrepresented. A switch to automated financial advice would mean a general loss of job opportunities for women, as well as causing a gender gap in the sector. In general, this is negative for the financial institutions as well as society as a whole.
UEF is concerned about the implication of the future developments on employment:
Training of employees must be a priority
McKinsey’s conclusion of the insurance sector’s transformation is that “given the magnitude of these changes and the looming future, it’s important that insurers begin to rethink their priorities right now. These should include retraining and redeploying the talent they currently have, identifying critical new skills to insource, and retuning value propositions in the war for new talent and capabilities.” (http://www.mckinsey.com/insights/financial_services/automating_the_insurance_industry). It is important not to lose the current workforce’s experience but rather to import and translate them into the new ways of business.
The need for digital upskilling
“3.1 As a logical consequence of digitalisation, digital technologies are being introduced into a growing number of workplaces in the service industry. For instance, almost 60% of employees in the banking sector report the introduction of new technologies into their workplaces during the past three years. Employees require specific competences, i.e. e-skills", to become proficient operators of such technology. This means that curricula in vocational education and training need to be updated accordingly and related training measures implemented.” (EESC opinion by group II and UNI Europa http://www.eesc.europa.eu/?i=portal.en.ccmi-opinions.34826);
UEF believes that every employee must have sufficient skills to fulfill his/her job. Whenever skills requirements change – and they inevitably do in the frame of digitalisation – the employer should provide for adequate and sufficient digital upskilling of their staff. This not only benefits the enterprise but also the sector at large in terms of increased employability of finance workers and should be a top priority for all companies providing financial services.
The need for training on new customer needs
In the insurance sector, training also needs to encompass new business areas, such as Cyberinsurance (Insurance against cybercrime, hacker attacks, etc.). Employees need to know the new risks and how to include them in their products. With the fast approaching future of automated living and mobility, further questions arise: How to insure a car without a driver? How to ensure a household robot and possible damage it can make? Continuous training, lifelong learning, professional and career development throughout the whole working life become ever more important in order to keep up with the fast changing challenges."
UEF urges the ESAs to take into account the social and societal consequences of automation in the entire financial sector.
The negative impact of digitalisation/automation: Restructuring and job losses
In everyday business, the impact of digitalisation is mainly visible to trade unions in the form of mass redundancies, IT outsourcing, job profiles changing and employees not corresponding to the new job profiles (among others) set free on a large scale.
Local agencies and branches of finance companies are shut down and less employees remain to provide customer service face to face. This is not only bad for the customers but it is also a constant source of stress for employees in customer service: Affiliates from the banking sector have been reporting that currently a source of permanent stress is the uncertainty of still having a job on the next day due to unannounced closings of branches from one day to another. Whereas the insurance sector may still be less brutally concerned of such rapid changes, the trend is the same and many of the big multinational companies are active in both bank and insurance (and even other) sectors.
This is not only a perception by trade unions. A recent study by McKinsey confirms that perception: “our most probable outcome for insurers sees up to 25 percent of full-time positions consolidated or reduced as a net aggregate, occurring at different rates for different roles over a period of about a decade.”
New forms of employment such as crowd working, collaborative working and online platforms (that act as informal temporary work agencies, often at the cost of workers) are appearing. They leave workers outside of collective agreements or even the minimum wage, social insurance systems and give way to new forms of bogus self-employment.
A key role to social dialogue at sectoral and company level
Digitalisation/Automation brings a wave of restructuring, new working methods and new business models. Because these changes come with a frightening speed and a lot of uncertainties, there needs to be a real social dialogue. Employees not only need to know that they trust their managements to make the right choices and be informed right from the start about coming changes. They also need to be heard and can provide useful first-hand experience from the shop floor to support management’s decision making. They know best the practical needs of their clients. This knowledge should be at the core when shaping new business models and introducing new methods of selling insurance products or handling claims.
Respecting European law on Information and consultation
The European legislation on information and consultation defines the obligations of multinational companies to involve employees and their representatives at a very early stage in the anticipation of change. If those rights were respected by managements to the extent intended by the legislator, a big step would already be made. In practice, we experience that true consultation taking place at company level (before decisions are made) is still the exception. In terms of trustful and constructive joint tackling of the digital challenge, consultation and dialogue are even more important.
Collective bargaining must not be undermined
UEF sees collective bargaining as a key tool in tackling the many changes brought by digitalisation/automation
Terms and conditions of new working methods, new forms of employment or necessary training measures and improved work life balance within the new technical possibilities of working around the clock must be defined.
UEF believes that governments needs to adapt their legal frame so that workers’ protection, workers’ involvement as well as a fair labour market can be guaranteed in this “third industrial revolution”. That must be the case for all types of workers, be they crowd workers, collaborative workers or workers under conventional contracts. And governments need to involve social partners in that discussion. Collective agreements at sectoral and company level will need to complement regulation when it comes to the practical implementation of digitalisation.
Under the slogan “Climate Change is union business”, UNI global union is engaged - together with other international trade union organisations - in raising awareness about the dangers of climate change and working towards a world of work where the protection of the environment and the protection of workers go hand in hand.
UEF is concerned about the energy costs needed to provide and maintain technical infrastructure for computers, servers and other technical devices. In particular, UEF is in favour of alternative, low energy options for cooling data centres and of using the energy generated from them in a way that serves public interest.
Humanitarian concerns about the production of mobile technical devices
Companies should favour purchasing mobile devices from providers who guarantee a fair production circle where workers’ health and lives are not being put in danger.