Most robo-advice start-ups ‘will disappear’ in a few years

Strategy director of financial technology provider EValue argued there are too many robo-advice firms entering the market with no realistic prospect of long-term survival.

Mr Moss said the UK can learn from the US market, which he claimed has been “over-enthusiastic” in terms of the creation of robo-advisers.

“It is easy to underestimate the difficulty delivering an engaging experience for consumers while at the same time satisfying regulatory standards,” he said.

A report compiled by EValue said customers are put-off the entire advice process if they have to answer too many questions.

But the paper also pointed out that "sketchy" and "two-dimensional" advice processes risk ignoring critical components when it comes to ensuring recommendations are suitable.

Looking at the US, EValue found that companies with big brands had rapidly outstripped the start-ups, helped largely by the big firms having an established investor database, and through being able to integrate robo-advice with other existing channels.

For example, specialist start-ups such as Betterment and Wealthfront had a seven-year head start on Vanguard, but Vanguard managed to accumulate twice the assets under management of both start-ups in just over a year.

 There are models which will prove a complete waste of time and money Bruce Moss

Mr Moss argued there will be at least two “game-changing” business models, which stand a good chance of long-term success.

These models, he said, are “pure-robo” offerings which use computer algorithms, and “hybrid” offerings which integrate support from regulated financial advisers.

“But I also believe that there are other models, which in some cases are attracting a great deal of attention at the moment, that will prove a complete waste of time and money.”

He pointed to the “dangers” of self-directed execution-only models which use ‘guidance’ instead of advice, and said care must be taken to avoid guidance being considered in any way personal to the consumer.

Frances Kemp, IFA at Nurture Financial Planning, said: "All firms of all levels need to recognise the existence and need for robo-advice, especially as the gap between those that need and can afford advice widens.

"In a number of cases, robo-advice can be totally appropriate where the clients fully understand any implications of decisions made and actions taken, and in some cases can generate valuable clients of the future for advisory firms." 

However, Ms Kemp said - as with most technologically-supported financial platforms - the market will be full and naturally providers will merge over time.