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Defined benefit pensions' demise linked to robo's rise

Defined benefit pensions' demise linked to robo's rise

Advisers should be prepared to embrace robo-advice as their clients become more dependent on defined contribution pensions, it has been suggested.

Geoff Towers, the chief executive of Pershing, which provides trading, clearing, settlement and custody services as well as portfolio management, said advisers have no need to be concerned about robo-advice – which he distinguished from robo-investing services such as Nutmeg.

Instead, he argued, advisers should embrace automated advice as way to manage the move from a post-war cohort of baby boomers, who benefit from the guaranteed income provided by defined benefit pension schemes, to those who must accept much more personal responsibility for their retirement.

“Consumers increasingly make initial choices on line - think of TripAdvisor - robo-advice allows much the same early filtering process. Those who are serious will go on to meet.

“A well-designed robo-advice isn't so much a threat to advisers as a high-quality triage service. Think of robo-advice as an incubator for future full service advice clients.”

He added that robo-advice could lead to a more transactional model of advice where clients speak to the adviser for a “crisis event”, pay a large sum of money for support and then a smaller maintenance fee between those events.

Some big name financial brands have recently become involved in the robo-advice market.

FTAdviser revealed in June that BlackRock, the world's biggest asset manager, had taken a significant stake in Scalable Capital, which launched in the UK last summer and describes itself as “Europe’s fastest growing digital wealth manager”.

Last November, Schroders bought a stake in Benchmark Capital, the company behind advice network Best Practice, which runs various technology-based services which work with automated advice.

However Mr Towers said he had not seen any “compelling” examples of automated advice.

The rise of defined contribution-only pensions is significant, whether or not this will act as a catalyst for robo-advice services.

From the beginning of auto-enrolment in late 2012 through to 2015, the percentage of people saving adequately for retirement in to a defined contribution scheme rose from 45 per cent to 56 per cent.

Meanwhile private sector defined benefit schemes have overwhelmingly moved towards closure in recent years, including Marks & Spencer and German car manufacturer BMW.

In August last year, JLT Employee Benefits reported that just 5 per cent of FTSE 250 companies were contributing to company DB schemes for a significant number of employees.

Mr Towers, the former chief executive of Standard Life Savings and managing director of Legal & General UK, said: “Robo-advice isn't something to be feared. Potentially it greatly increases the demand for full service advice."

Increasing numbers of advice businesses are looking at offering a robo-advice service, with Bellpenny among the most recent to reveal its plans. Its assets held under custody grew 20 per cent in the past 12 months to £55bn.

damian.fantato@ft.com

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