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Are Pensions About to Change Robo-Advice?

By Daniel Tammas-Hastings (Risk and Investment Specialist, Managing Director)

Nearly ten years into the great robo-advice experiment, the industry is still unprofitable and name recognition from the general public for the service and technology is still low to non-existent.

It may not feel like this if you are ensconced in the FinTech ecosystem, but to the man on the street, nutmeg is something that Jamie uses to spice up a salad. This despite the robo-advisors having a clear value proposition and receiving years of regulatory support. But there are several reasons to suspect this lack of awareness may be about to change. Clearly there is a great deal of institutional interest, with BlackRock taking a stake in Scalable Capital (Believed to be the fastest growing ‘robo’ in Europe) last year and news that Goldman Sachs are to take a stake in Nutmeg. Not just a spice but the original and largest UK player in digital investment advice.

So what is the fuss about? As we move into the new FinTech year we are seeing more and more diversification within the existing wealth platforms and many start-ups broadening their product suite by adding financial advice and SIPP (Self-Invested Personal Pension) products. With this in mind it looks to be a particularly exciting time for WealthTech. Coming into 2019 most of the large UK Banks have been experimenting with Robo-Advice and the distribution and branding power of the retail banks could go a long way towards establishing trust and recognition in the industry. This will help both incumbents and the challengers gain trust in their service.

With barely 1% of the public using a robo-advice account the industry has a long way to go and clearly the potential is huge. There is a broad consensus among experts arising that the majority of individuals will use a digital platform for their investment needs in the long-term. But with UK regulations particularly auto-enrollment creating more savers the turning point maybe near, possibly this institutional money is coming to take advantage of that. The sector’s likely rapid growth could be what has spurred Goldman’s recent investment.

Previously we had a marketplace where Robo-Advisors typically only offered a general savings or ISA product, and although account sizes varied from provider to provider the average account size was significantly less than the average Pension. Typical account sizes for the major players are difficult to obtain as for commercial reasons the platforms rarely share them, but consultant estimates vary from around £50,000 for Scalable Capital to just hundreds of pounds for apps focused on younger savers such as MoneyBox. However the average UK pension pot is approximately £100,000. Making Pensions and SIPPs potentially a much more interesting and lucrative market. As a result of this all the major players now offer a SIPP or are planning one for 2019. With auto-enrollment in a personal pension creating a legal necessity for long-term saving and legacy players entering the market developing a pension’s proposition should be the main driver of growth for the sector moving forward, and take the industry to profitable maturity.

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