Robo-advice founder says Carney 'misinformed' on fintech

Robo-advice founder says Carney 'misinformed' on fintech

The founder and chief executive of Scalable Capital has called Mark Carney’s concerns about robo-advice “misinformed”.

Adam French was responding to a speech made by the governor of the Bank of England earlier this month when he warned that increased reliance on fintech could expose the industry to financial instability.

For example he warned that robo-advice and risk management algorithms could lead to volatility or increase pro-cyclicality because of herding, particularly if the underlying algorithms are overly sensitive to price movements or highly correlated.

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But Mr French said herding has been a feature of investing for years, with most investors sold “off-the-shelf” model portfolios through traditional advice.

He said: “Without the use of technology, there is no way to provide truly individualised portfolios that will be adjusted differently in changing market environments.

“The established players therefore have to make shortcuts and as such people get placed in exactly the same portfolios that are adjusted in exactly the same way as conditions change.

“That means that in addition to a substantial portion of ‘actively managed’ funds being no more than index-trackers in disguise, the traditional approach of model portfolios leads to herding on a huge scale.”

Mr French also said Mr Carney had assumed that all robo-advisers use exactly the same investment methodology, which he said was not the case.

He said: “It is like saying that all fund managers have exactly the same investment methodology, an assumption he doesn’t seem to be making.”

Mr French also sought to put robo-advice into context, saying £1bn is managed by European robo-advisers compared with the £109bn the Financial Conduct Authority says is managed by closet trackers.

Scalable Capital was launched last year and in September it said it was growing its assets under management by between €2m (£1.7m) and €4m (£3.4m) a week.

The company says its assets under management are now growing at a rate of €1m (£860,000) a day.