If we believe all that we hear, so-called robo-advice will soon become the most important element in the delivery of financial services. I have some strong views on this.
Wikipedia seems to have summed up the definition of robo-advice quite well: “Robo-advisers are a class of financial adviser that provides portfolio management online with minimal human intervention”.
Is it advice?
No. And this is where I have a major problem with the term, it is clearly not advice. At the very most, and only in some cases, it is guidance, but even the providers of such services are extremely definitive in confirming that it is not advice. It is automation.
Is it new?
No. Hargreaves Lansdown, as just one example, created a fully discounted online service for UK clients, making their own investment decisions way back in 1996, and even launched a fully online, non-advised pension product as far back as 12 years ago.
It isn’t new but the rate of progress and development in this area arguably is.
Should we believe the headlines?
No. Well, at least not always. One article referred to US investor appetite for such services as “vast” – and then highlighted the fact that the 10 major US companies in this area had total combined assets of only $6bn. That is hardly “vast” - many UK standalone platforms dwarf that total figure alone.
Having said that, increased automation is on its way, of that there is no doubt in my mind. We simply need to take a reasoned view as to the degree and the manner in which it is likely to affect our industry.
Can we learn from the US?
Yes. While the US is often quoted as an example of how full automation will ‘take over’, the market there has actually moved in a different direction.
The models which are expanding in the US are half-and-half; they have an automated front-end, where the client pretty much self-serves in terms of putting in all their details, and then speaks to an adviser on the phone or via Skype for the advice part.
It seems clear to me that semi-automation is more likely to be the shape of the future, certainly in the advice sphere.
What do regulators think?
The UK’s Financial Conduct Authority has laid the groundwork for firms to come to market with automated models, not least via ‘Project Innovate’ in 2014 and also under the remit of the recently announced Financial Advice Market Review.
The Australian Securities and Investments Commission (ASIC), has confirmed that it is engaging with the industry on these new developments and how they fit within the regulatory framework.
In addition, the European Union super regulators (ESAs) have just launched a consultation with regards to automation within financial services.