Robo-advice can be a valuable addition to the service offered by advisers, despite the perceived threat that it allows product providers and fund managers to go direct to consumers, industry experts have said.
Speaking to FTAdviser, FinaMetrica co-founder and director Paul Resnik stated that robo-advice will force advisers to look at other ways than investment returns to differentiate their service, so the key to future success is delivering a more personal service than a robo-adviser.
“We believe that robos and cyborgs are the disruptive application of technologies that will fundamentally change retail financial services.
“Every bank, life company, investment research house, pension fund, investment manager, advisory firm and platform on the planet will be developing its robo and cyborg goals in the next 24 months,” he continued, adding that some will see it as an offensive strategy, seeking new clients, while others will see it as defensive, protecting existing relationships.
FinaMetrica is in the final stages of launching an investor profiler, which aims to be best practice suitability process for both robo advisers and cyborg advice.
Mr Resnik explained that robo-advisers are direct to the public short tests that help individuals articulate their needs and match to multi-asset portfolios, while cyborg advice uses largely the same process, but with some human intervention.
“We have exemplar investor profiling solutions complete in both Switzerland (cyborg) and South Africa (robo) and two robo releases planned for Australia in September that are scalable internationally.
“We are in negotiations to replace the suitability process in an existing German robo and are engaged in two innovative cyborg developments for UK advisers. We are hopeful of shortly offering a white label robo-adviser site where our client merely personalises the pages.”
Bruce Moss, strategy director at eValue, said that robo-advice started in the US over six years ago, via new entrants coming to market with a “fairly simple” risk-rated portfolio management service built around funds and ETFs.
“Recently a number of large established players like Charles Schwab, Vanguard and Fidelity have entered the market.
“For the most part robo-advice remains focused on wealth management but recently Betterment - the largest robo-adviser - announced it is launching a retirement planning robo service taking on established players in this space like financial engines.”
On both sides of the Atlantic, regulators have “know your customer” and suitability requirements, although these are interpreted less stringently in the US, according to Mr Moss.
“Having said that, for a simple wealth management service, the regulatory requirements in the UK are quite manageable and should not deter the development of simple robo advice offerings.”
He continued that in the US, robo-advice was initially seen as a threat by advisers and some still do hold that view, as it allows product providers and fund managers to go direct to consumers.
“However things are changing and many advisers are coming to see robo-advice as a valuable addition to their service.”
Matthew Brown, private client partner at Thomas Miller Investment, said that the current market for technology-based advice is still in its infancy, although he noted that the development of retirement modelling and appetite for risk tools have paved the way in recent years.
“Simple advice to the mass market - i.e. investing in an Isa, saving into a pension or buying term assurance - should be done online and without the need for face to face advice. All the advice community is doing is manually hand cracking a machine that should be automated.”
He suggested that the risk of poor consumer outcomes for this level of advice is relatively small and advisers should adopt self-select models for their smaller clients, which will act as a ‘nursery’ generating brand loyalty for when people actually need an adviser.
“A model will never be built that is capable of dealing with the complex older pension structures, reams of new government legislation, analysing tax efficient investment offerings or simply managing someone’s wealth who does not have the time nor interest to do it themselves,” Mr Brown added.
“Technology will develop further and dominate the mass-market and the adviser community will largely carry on as it does now, just using technology to make themselves more efficient and profitable.”
Sham Gill, head of strategy and proposition at financial services technology firm SSP, commented that amid these changes, it is important that advisers maintain a holistic approach to their digital strategy.
“They should ask themselves whether other channels can remove some of the burden so that they can focus on giving that personal touch.
“I think decisions are currently being made in isolation at many firms, these things need to be considered as a whole. The changes will be ultimately driven by consumers wanting to engage in a certain way, so advisers shouldn’t make assumptions about who their customers will be tomorrow.”
peter.walker@ft.com
