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Automation is driving progress in adviceLearning to love the robo-investor and robo-adviser
The robots are here. But before you run for the hills, we are talking R2D2 rather than Terminators: benevolent machines, doing our heavy lifting, but better, faster and more reliable. Across almost all sectors, automation and digitisation are transforming our daily lives.
The world of investing is no exception. Robo-investing and robo-advice are on the verge of a major breakthrough in the UK.
Consulting firm A. T. Kearney estimates the rapidly expanding sector is set to grow 68 per cent annually, and could be worth $2.2trn (£1.73trn) globally by 2020. About half of this is expected to come from assets already invested with traditional managers, which is why big brands are looking to get in on the act – InvestTec Wealth, Brewin Dolphin, Hargreaves Lansdown and Barclays are all believed to be launching robo services in the UK this year.
They are unlikely to be the only ones owing to the tremendous latent potential in the market. If you consider there is currently £700bn sitting in cash savings in the UK, even if the robo-investment firms convert only 1 per cent of that, they would be managing £7bn. In the US, where the market is much more mature, robo-investors are already worth close to $60bn.
‘Robo’ here has been adopted as a loose, catch-all term for removing humans from various parts of the investment process and replacing them with automation, algorithms and slick digital platforms. It covers a spectrum of different models, from robo-advice through to robo-investing.
Robo-advisers, in the first instance, provide discretionary advice, using algorithms to steer people towards a particular investment portfolio based on their responses to a series of profiling questions. In essence, it is advice on what level of risk an investor should take, drawn together from information about their savings habits, debt, lifestyle, and goals.Robo-investing, meanwhile, usually refers to cases where algorithms select and potentially trade a portfolio on someone’s behalf. Robo-investors will make automated investment decisions based on the level of risk an investor chooses.
There is every reason to welcome the robo concept, not as a fad, but as a viable, mainstream investing channel for everyone.
Why? Because most ordinary people are priced out of traditional wealth management services – a typical IFA, for instance, will not sit down with a client with less than £20k to invest.
