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Robos taking over the world

This article is part of
Guide to Robo-advice

Robos taking over the world

The government has said it wants to make buying financial products as easy as buying a car.

In the robo-universe ‘elsewhere in the world’ really means the US, where robo-advice is growing fast.

The US is a low-regulation market so operators can be quite creative. There are pure-play robos in the US, such as Betterment. Meanwhile many established players are rapidly building or buying robos, such as Blackrock’s purchase of FutureAdvisor.

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And US robos are evolving.

They are becoming more capable and are being delivered to advisers as ‘infrastructure’ items to help in their advice business.

Little of that is happening in markets with heavy regulation such as Europe or Australia.

The danger that we see in the US is that robos may be giving advice that is not appropriate or suitable because they have been denied the critical data they need to make a good decision – such as a robust risk tolerance assessment.

In terms of how robo-advice will rock the UK, Paul Resnik, director of investment suitability experts FinaMetrica, says robos will be everywhere.

He says: “Everyone in the financial services supply chain will have a robo, either as a direct to consumer offering or as a tool for financial advisors to use.

“Your client base could be under threat. Your new competitor might be a club or a church – any organisation with a large membership could soon be in the market for a while-label robo.

“You will have a choice of robos, which will not all be the same. If you plan on working with one you will need to assess it carefully.”

Mr Resnik said he could not see any advantage to rushing into this market except for service and product providers, such as platforms and investment managers, to advisers.

He added: “Robos are quick and accurate at process work, like collecting data. On work that is easily automated robos will make all other technologies look slow and out-of-date.

“Robos deal in low-cost investment structures and that is going to challenge your thinking, practice and profits.”

Just as low-cost airlines lowered airfare costs, Mr Resnik said robos are likely to bring down the base-cost of advice.

But, he added just as with the airlines, some will not want to fly with the cheapest; “some will be happy to pay full-economy and some will want the silver-service that comes with first-class”.