Robo-adviceMar 13 2020

Which robo-advisers are working

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Which robo-advisers are working

If media coverage is anything to go by, you could be forgiven for thinking that the digital wealth, or ‘robo’, sector is facing an uncertain future, following the recent demise of Moola, which itself came hot on the heels of Fountain, Click & Invest, and SmartWealth. 

It would be very easy just to write off the whole digital wealth sector based on these examples, which on face value confirm the accepted wisdom that brand, scale, and reach are critical success factors:

• Lack of consumer brand makes it more difficult to engender trust, especially in a crowded marketplace where well-known D2C brands are already established.

• Starting out with no existing customers or mature distribution capability makes customer acquisition high, with long payback periods.

• A limited start-up marketing budget will not be able to resolve the two previous points.

Sadly, despite all the blood, sweat and tears of very passionate people who literally put their lives on hold to deliver their dream, at some point, the money is gone and the fire flickers out.

Key points

  • Several robo-adviser companies have closed recently
  • Some are still successful, with billions under administration
  • Using behavioural finance and offering something new is the answer

Put bluntly, if you do not have a compelling proposition, and it is all a bit bland and ‘me too’, well, quite frankly, nothing else matters, including your shiny new website or whizzy new app, because not enough people will find you.

This, though, is only part of the story.

Sometimes we can all get caught up in our own personal echo-chambers where we only hear the views of like-minded people who just reinforce our own, and after a while it becomes ‘fact’.

So in the interests of balance, I would like to share some of the other challenges in (parts of) robo-land, and also look at who is beginning to get it right.

(Im)patient parents?

Some propositions started life as a child of an incumbent brand, or — given the challenge of achieving scale before the money runs out — have sold a stake in their business to one. For example:

• Click & Invest was part of Investec.

• MoneyFarm has received sizeable investments from Allianz AM.

• Moola was acquired by JLT, which itself was acquired by Mercer last year.

• Scalable Capital has received investment from BlackRock.

• SmartWealth was owned by UBS.

• Wealthify sold a significant stake to Aviva.

• Wealthsimple is primarily owned by Power Financial Corporation.

• Wealth Wizards received significant investment from LV=, and is currently seeking further investment to fund its expansion.

Sometimes, where there is a real acceptance of each other’s strengths and frailties, these marriages are rock solid.

Other times, we see a marriage between an incumbent — with its very traditional (and often slow) ways of doing things — and an agile, flat structure, quick-thinking start-up fraught with difficulties after the honeymoon period.

Interestingly, the list above contains three of the recent casualties: Smartwealth, Click & Invest, and most recently, Moola. Here, the parents ran out of patience with their start-up child, wanting and expecting a return on their investment in double-quick time, and reacted by closing the business when the unrealistic ‘hockey stick’ revenue did not materialise.

Having a rich parent can undoubtedly be a godsend, but as the three previous examples found to their cost, it can also be a wake-up-in-a-cold-sweat nightmare.

Yet there is evidence that with a little more patience and pragmatism these relationships can begin to pay off, particularly where the digital brand evolves its business model to provide business-to-business/to consumer services, as well as its direct-to-consumer shop window.

Scalable Capital is now fast approaching £2bn assets under administration across its platforms, and this will be further boosted when it announces further successes through its B2B strategic focus with BlackRock.

Meanwhile Wealthify, with its Aviva backing and access to distribution, has more than doubled its invested customer base to 25,000 over the past year, and will shortly launch a pension proposition.

It now also has a real focus on the B2B space, too, with a number of new advice partnerships in development.

Other forward-thinking partnerships include: Bank of Ireland working with Ignition Advice; Danish bank Jyske partnering with Munnypot; Nutmeg receiving investment from Goldman Sachs and going international via its B2B partnership with Taipei Fubon Bank; Tiller moving from D2C to B2B only and focusing on wealth managers; while Wealthsimple, the major D2C robo player in Canada, has a pure B2B focus in UK and Europe, with new partnerships to be announced.

Differentiation is key

The challenge for any new brand — regardless of sector — is to win hearts and minds.

Insightful consumer research, increasingly using behavioural experts rather than traditional market researchers in the design of the research approach, observation, and analysis, uncovers real consumer needs or challenges.

For example, concerns such as reducing monthly bills, building up emergency savings or a nest egg, reducing debt, protecting the family, helping to buy a home, reducing a forthcoming tax bill, or thinking about retirement, may come up.

What typically will not come up is a product question, such as “tell me how to invest into a stocks and shares Isa”.

Some organisations get this.

See how Wealth Wizards is evolving its MyEva ‘adviser in your pocket’ proposition and its AI-based advice rules engine to keep advisory businesses consistent in their advice.

Or witness how OpenMoney is beginning to deliver a breadth of hybrid services, which are a far cry from the Robo 1.0 type linear journey into a risk-based investment model, which so many have launched over the past few years:

• Qualified financial advisers have developed a set of algorithms that create personal recommendations for people going through the online journey, and these advisers are available via phone or Skype if needed.

• Depending on client circumstances, the algorithms provide both regulated and non-regulated recommendations – 6500 people received a recommendation in January, of which 812 were given recommendations to invest.

• Of those recommended not to invest, more than 3,000 downloaded the OpenMoney app and linked their accounts, where their partnership with uSwitch helps people save money on their utilities.

• GI and mortgages services, and a new workplace proposition are all in development, too.

These new propositions have gone beyond the early ‘robos’ of trying to sell a product simply by creating a lower-cost version of the existing model.

Removing people is not the answer.

No, the best of the new services are evolving at speed, offering a broader range of services, and meeting more and more consumer needs. They will continue to attract investment and are here to stay.

If you find yourself talking to someone who proclaims ‘robo is dead’, it is worth reminding them that it is actually far more nuanced than that.

And if you work in propositions, please, do not play safe; push the boundaries.

An original is always worth more than a copy. It’s when your competitors start copying you that you will know you are doing something right.

Simon Bussy is director, wealth at Altus Consulting

FTAdviser’s inaugural Smarter Business Summit is a full-day event that will equip advisers with the skills and insights they need to keep their business relevant and successful. Discover more here, and sign up for either the London event on Tuesday May 5, or Birmingham on May 7.