Robo promises to become a large market and cover most segments, and far beyond investments. Such the conclusion was announced last week at the Robo-Investing conference in London. As the conference’s speakers mentioned, competition will be intense as barriers to entry are low. All the segments of wealth managements have robo-initiatives – from wealth managers, life & pension providers, and banks to software vendors.
Apart from the standard functionality, two key elements set Robo-advice apart from historical wealth management offerings. Firstly, investors can access the service at very low minimum threshold investment amounts, and secondly, investments carry a very low management fee (charged to run the portfolio). “Combine these elements with relatively sophisticated risk profiling and investment goal determination, and robo-advisers provide a channel that offers investment advice to everyone, regardless of how much money they have and their level of financial knowledge. As a conclusion: such automated platforms go some way to democratising participation in capital markets and can ultimately provide a level playing field for inclusive wealth creation,” said Ben Stokes, Managing Director, Actual Intelligence.
Widespread digital shift
TechFluence research shows that it is already invested around $75bn in robo-advice models worldwide. There are 64 robo-advisers in Europe as of December 2016, both in the B2B and B2C space, six of them collected more than €100m in assets. London, not surprisingly, is the epicenter of robo-advice in Europe.
“We are entering an exciting and transformational period in wealth and asset management. What started as disruptive innovation amongst a select few robo-advisors is quickly developing into a widespread and accelerating digital shift across the entire industry. Institutions are quickly learning to service clients through multiple channels and segments as well as empower their financial advisors with automated propositions and the tools needed to improve relationships and grow their business. Many start-up firms are emerging with new technology in the fields of AI, content and portfolio management. Whilst others are evolving their business models to include white-labelled services and forge new partnerships and distribution channels. The regulators too are playing a crucial role to ensure that, with modernisation, personalisation and scale, comes due care and attention to investor risk and suitability. There are many challenges we face together in educating clients as we move from selling products to providing solutions,” said Anthony Christodoulou, founder, Robo-Investing Europe 2017.
Pros & Cons
The Financial Advice Market Review (FAMR), jointly commissioned by the FCA and HM Treasury in August 2015 and published in March 2016, places considerable importance on the role that technology, such as robo-advice, can now play in creating a more inclusive, accessible, engaging and cost-effective advice market in the UK. The rationale for this is obvious, said Bruce Moss, Founder and Strategy Director, EValue. On his point of view, by automating the advice process so that it can be delivered remotely and driven by the consumer, costs will be cut sharply as a result. At the same time, consistent quality and through documentation generated by the process will provide a full and reliable digital paper trail to ensure regulatory compliance. “Finally robo-advice offers a scalable way to deliver advice not dependent on the ability to recruit, train, motivate and retain growing numbers of financial advisers,” noted Bruce Moss.
However, against these positives, two very considerable negative concerns currently exist. The first is to do with regulation. Although the FCA is supportive of robo-advice solutions in principle, the key point in practice is that the regulator has not lowered the suitability standard of the advice given. “The advice can be focused on a particular goal, but the consumer’s other financial circumstances must be considered to ensure that there are no higher priorities which might make the advice unsuitable,” stated Founder and Strategy Director to EValue.
The second concern is to do with the level of consumer demand. Beyond a small number of highly engaged investors, there seems to be little sign, in the UK, of pent-up consumer demand for new ways of making investment choices. “Indeed, in the fast-growing field of auto-enrolled pensions, the vast majority of new members are not making any investment decisions at all. Instead, they are simply accepting the default option provided for them,” said Bruce Moss.
It is also should be mentioned and considered that some consumers need more help than others need – possibly because their circumstances are complex. Rather than lose them it is important to be able to offer another option – advice over the phone or even face to face. Robo should be part of an integrated advice solution with the consumer in control and able to decide how much help is needed. The technology and advice process should be consistent between each of these options so that consumer can move seamlessly and cost efficiently between them.
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