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 $2.2 trillion globally by 2020.
Around 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 – Investec Wealth, Brewin Dolphin, Hargreaves Lansdown and Barclays are all believed to be launching robo services in the UK this year. And they are not likely to be the only ones.
‘Robo’ 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, which recommends investment based on information about lifestyle, goals, risk levels and savings, to robo-investing, which usually refers to cases where algorithms select and potentially trade a portfolio on someone’s behalf.
There is every reason to welcome this concept, not as a fad, but as a viable, mainstream investing channel for everyone.
Why? Because the vast majority of ordinary savers are priced-out of traditional wealth management services, their cash rotting away in high street accounts earning record low interest rates averaging 0.25 per cent a year.
In short, there’s a desperate need to make investing easy and convenient, to help the typical saver to grow their money and shore up their financial future.
And with a quarter of Britons having less than £3,000 saved (according to data from Wealthify) the solution must also be low cost and affordable for the mass market who aren’t willing to pay £150* per hour for financial advice.
Robo-investing, with its far cheaper operating model holds great promise as a way to achieve this overdue democratisation of savings and investments.
But it’s not just cost that is driving accessibility. Robo changes how people access investment services.
Anyone, anywhere with an internet connection can sign up and start investing in minutes, check their investments and withdraw them any time they like.
It’s exactly this kind of instant, agile service that appeals to the younger generation, and it’s leaving many banks and traditional providers scratching their heads as they try to work out how to compete.
Robo appeals to the iPhone generation – those accustomed to polished online services – and crucially, to those who aren’t wedded to the big, and in some cases damaged, financial brands.
So robo ticks a number of boxes, and certainly machines are a lot better than humans at some tasks. But even so, the question is will people be comfortable handing over their money to a machine?