Robo-advice  

Coutts claims Facebook is financial adviser of the future

Coutts claims Facebook is financial adviser of the future

A combination of the rise of robo-advice and the habits of millenials could mean social media platforms such as Facebook could become major players in the financial advice market in the future, according to Coutts.

Stuart Newey, managing director and head of banking at Coutts, said as millenials get older, they will become wealthier and become a bigger part of the advice market.

He noted that Facebook already has a service allowing individuals to make payments, and said financial advice may be a next step for the social media giant as it seeks to grow.

Mr Newey was speaking at the Personal Investment Management FInancial Advice Association annual summit in London.

He said many millenials trust social media platforms such as Facebook, while the conventional financial advice industry has a trust problem.

He said this could lead to Facebook and other such businesses displacing traditional advisers.

David Bellamy, chief executive of St James Place, said he doubts millenials actually do trust Facebook to the extent the company could win significant market share in the advice market.

Jeremy Fawcett, head of Platforum, said the industry currently treats robo-advice as a “binary” topic, where the view is that either robo-advisers will dominate the market or that all of the robo-advice businesses will disappear.

He said his view is the established firms in the industry will partner with robo-advisers and those will survive, while most of the “disruptive” robo-advice businesses will vanish.

Last year a report on robo-advisers stated it could take up to a decade for these businesses to make a profit from their clients.

Analysis from IRN Consultants highlighted recent research which showed each new robo-advice customer signed up is losing the company £162.50 on average in the first year and only making £17.50 in subsequent years.

This would mean that client would have to be retained for the better part of a decade just for the company to break even from them - assuming the robo-adviser’s business model doesn’t change.

One of the companies the report pointed to was Nutmeg, whose accounts for 2014 showed revenues of £635,000 compared with operating expenses of £5.9m.

The report also estimated that in the UK, robo-advice accounts for around £150m of assets under management. This represents a tiny proportion - just 0.0125 per cent - of the £1.2trn which the Financial Conduct Authority estimates is invested by retail and private clients.

david.thorpe@ft.com