Robo-advice 

Understanding the new era of client relationships

  • To understand what is driving the trends in robo-advice.
  • To grasp how it can be used with investments such as ETFs.
  • To gain an understanding of how robo-advice recommendations still need to be in tandem with the human touch.
CPD
30min

Over the years, this type of analysis has helped identify which asset classes have been ranked at the top and which have been ranked at the bottom.

Most platforms' screening and ranking capabilities look at six broad asset classes:

  • US equity
  • International equity
  • Fixed income
  • Commodities
  • Currencies
  • Cash.

For example, our platform showed that, from the end of 2011 until early 2016, US equity was the top ranked asset class, although volatility in early 2016 resulted in US equity losing its grip on the top spot for a few months last year.

By the end of 2016, US equity was again the top-ranked asset class in our platform, having achieved the top position in mid-August.

Going deeper

Meanwhile, by the end of 2016, markets generally reached all-time highs. But only an in-depth analysis of the underlying sectors can help managers and advisers work out where the great performance has come from.

By peering deeper into the US equity market, it is clear that the technology sector, along with energy, financials and industrials, are coming out as strongest from a relative strength perspective, while healthcare and real estate are at the bottom of the rankings.

When thinking about constructing portfolios today, the platform ('robo') generated relative strength analysis would suggest that investors want to be overweight in US equity, and in particular those aforementioned top-ranked sectors.  

These observations, however, would not be actionable for clients if portfolio managers and financial advisers could not fully see the context - historically and behaviorally - against the other, cross-asset underpinnings of the markets, and set against the individual client's own financial needs and aspirations.

This is why any outputs from platforms should be incorporated into the research as objective recommendations to clients.

This is where human and machine elements can be seen as working in step together to achieve the best possible result for the end client.

For example, we have worked with tens of thousands of advisers over the past 30 years and over 8,000 advisers are actively using our platform today to help guide investment decisions.

Latest internal data shows 78 per cent of the recommendations made by our clients are directly influenced by our platform. But we also cook with our own sauce.

We have built this tech into our own strategies, so the technology-driven data has become a core part of all our adviser-client relationships, and for financial advisers using the platform and their clients. 

It is important to note two things from any machine-generated recommendation. Firstly, recommendations gleaned from an engine are always recommendations, not an antidote.

Secondly, these recommendations are not a threat to the client relationship. Such recommendations are purely notional data and perceptions, which must always be managed carefully both as tools and as a partner within portfolio decisions.

CPD
30min
  1. What does Mr Gragnani say is shaping the way we approach the markets?

  2. What does Mr Gragnani say means many different things for fiduciaries?

  3. What does not mean you will be catching fish (as a metaphor for investment decisions), according to Mr Gragnani?

  4. Which methodology dates back to the 1800s?

  5. Mr Gragnani says machine-generated recommendations are not a threat to the client relationship. True or False?

  6. What can cut through all the noise in the markets, according to Mr Gragnani?

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