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American swiper

American swiper

Sometimes nice things happen. As I write this I am not long back from a fortnight on the East Coast of the USA, visiting with and learning about Murka’s burgeoning fintech scene and robo-advice in particular. At the risk of this column turning into ‘what I did on my holidays’, I thought I would take you through some stuff.

Before we do, let’s first deal with that horrible term, ‘robo-advice’. The thing about robo-advice is that there aren’t any robots, and most of the time they are not giving advice (at least not as we would recognise it). Having visited a few of them, I can’t stress enough how disappointed this Star Wars-raised kid is at the dearth of R2D2s conducting capacity for loss questioning.

Something else about robos is that most things described as robos are just highly structured low-cost advice propositions. Schwab and, notably, Vanguard offer these – and they are galloping. Real robos, in contrast, remain a minority sport. Betterment, one of the most established robos, has, after a good few years battering away at it, $2.6bn AUA (or it did when we were in the office; it has a counter on the wall).

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Most of the others are in the hundreds of millions rather than billions, such as FutureAdvisor (which just got gulped by BlackRock for $150m or so), which has $235m.

And that is where the interesting part lies in my view. What if the future for robos (sorry) is not in the replacement of advisers, but in bringing the technological and the personal together?

For this to work, there needs to be a genuine price differential between the low-cost/online proposition and having an IFA (Registered Investment Advisor or RIA in US-speak) coming and sitting in your front room and eating your biscuits.

They have managed this in the US – Betterment comes in at between 0.35 per cent and 0.15 per cent for its core service and its ETF portfolios run at around 0.12 per cent. So for between 0.27 per cent and 0.47 per cent you get automated advice, goal-based portfolios and a very nice portal to play with.

Flesh and blood

Ah, but you’re too clever to be hoodwinked by that. Betterment doesn’t have people giving you advice – so it’s easy for it to be el cheapo. What about flesh and blood advisers?

Good point. Let’s have a look at Vanguard. Vanguard’s Personal Advisor Service (Vpas) is a hybrid service. You self-serve at the start, and then toe the ball over the line with a phone-based adviser (or ‘advisor’ as the Yanks say, mistakenly). That adviser won’t come out to see you unless you have several million dollars.

Once you are up and running, how much you choose to use your adviser is up to you. If you’re wealthier (probably $1m plus), you get a named contact; if not then you speak to one of a team. But when you start a piece of work (like, say, a pension transfer), the individual you work with at the start of the job will stay with you all the way through.