Robo-advisers are encroaching on IFA terrain more than ever before.
How? By hiring human advisers to supplement their algorithms and offer advice at a fraction of the traditional price.
Nutmeg, for example, recently introduced human financial advisers to its digital-only investment service. It is now charging £350 for ‘tailored recommendations’.
In fact, Nutmeg head of financial advice, Lisa Caplan, said: "It is little wonder the UK is facing such an enormous savings gap when financial advice has been so slow to adapt to changing customer needs. In the next few years, the way financial advice is given is going to radically change.”
This quote should set loud alarm bells ringing for IFAs.
The Financial Conduct Authority's (FCA’s) May review into ‘automated investment services’ was an initial boost for the embattled adviser, stating that robos lacked in crucial areas such as service disclosure and suitability.
Conversations with our adviser base suggests this indictment from the FCA may have provided IFAs with a false sense of security, encouraging them to shrug off the threat of robos as nothing to worry about.
But advisers need to worry. Instead of retreating with their tails between their legs, the robos have taken the criticism on board and are adjusting and adapting their offer with the birth of the ‘hybrid-robo’.
Digital platforms are providing high-quality human advice to supplement low-cost robo services.
To make matters worse, robos are selling this advice as a loss leader. Wealthsimple launched its pension offering in October and claims that it will provide investors with unlimited access to human advice - at no additional cost to the client.
Others, such as Scalable Capital, sell advice for as little as £200 a session in a bid to secure as high a volume of assets as possible – assets under management obviously having a big impact on the future sale price of a robo platform.
The human response
Ms Caplan’s right, the way financial advice is provided in the UK is going to change.
Advisers in all their shapes and sizes will slowly but surely see their customer bases reduced as robos continue to pump money into advertising and brand credibility.
Why would an investor turn to their local high street adviser when they can receive a tailored online service at a time and place convenient for them?
Advisers could previously claim robos offered inferior or untested advice – after all they avoid active strategies and none of the UK cohort had been tested against a Black Swan event.
But the advent of hybrid changes all of this. Now the UK’s small and medium-sized adviser community has one major advantage left: their historical clients.