This is the year robo-advice enters the mainstream

It is anticipated that by the mid-point of this year there will be between 50 and 70 players offering an automated advice solution in the UK, including several major providers. 

As with any new disruptive technology, there are concerns among these firms - the automated advice market in the UK is still in relatively new territory and companies rightly want to ensure they are not exposed to risks that they cannot effectively monitor and control. 

Most current UK offerings have sought to manage this uncertainty by staying away from offering personal financial advice.

In regulatory terms, they are often positioned as execution-only discretionary fund managers, selecting asset allocation and underlying investments on behalf of their customers, in line with an agreed risk appetite.

It takes time to build confidence in the accuracy of an automated model.

This approach attempts to limit the scope, and therefore the risk, of the service - though some commentators are already questioning whether this truly avoids ‘advice’. In the current regulatory regime, the line beyond which advice has been provided is a fine one and not clearly marked. 

Others have crossed the line with clear intent. Services such as that offered by Wealth Wizards have set out to provide personal financial advice online, evaluating customer needs and making regulated recommendations. 

A human element is crucial to the approach of these more complex online financial advisers. Many are also routing online customers to a human if it is apparent that the need is complex or the customer may not have properly understood the questions asked during the process.

We believe that this hybrid approach of humans working alongside automated customer journeys will be a key element of successful solutions for the foreseeable future. It takes time to build confidence in the accuracy of an automated model, and there will always be customer circumstances or concerns that cannot easily be addressed by an algorithm.

But a human element is only part of the solution; additional safeguards will also be required. We would not allow a human adviser, however well trained, to operate without a system of checks, balances and oversight, and the same is true of an automated model.

Once safeguards are in place, EY believes that a robo-adviser would be expected to have fewer biases and a better audit trail than any human.

Assuming that appropriate controls, checks and balances are in place, the potential for systemic risk should be significantly reduced and advice generated via automated systems will be consistent and reliable. 

In addition, the economics of automated advice allow for a shift away from one-off advice events, towards working consistently with the customer to anticipate and react to needs, enabling course correction before problems take hold.

There is potential that far fewer regulatory problems should result from a carefully designed, tested and monitored automated process than traditional human-delivered advice.

We believe it is best to think of ’human-advice’, or ‘automated-advice‘ not as two separate activities, but in terms of using a flexible balance of automated components and skilled humans to make the advice process more structured, efficient and consistent.

Increasingly we are seeing advice firms consider ‘automated processes to expedite the vital para-planning process. 

The necessary human touch points will always remain part of the process for some customers, but the speed with which an answer can be generated can be significantly faster, and the cost of human advisers leveraged across a much larger group of customer – essential in the post-pensions freedom world.

Dan Mahony is a member of EY's life, pensions, wealth and asset management practice