ROBO-ADVICE FOR INCLUSIVE WEALTH CREATION

Robo promises to become a large market and cover most sectors, and far beyond investments, the conclusion announced at the Robo-Investing conference in London. As the conference’s speakers mentioned, competition will be intense as barriers to entry are low. All the sub sectors of wealth management have robo-initiatives – from wealth managers, life & pension providers, and banks to software vendors.

Apart from the standard functionality, two key elements set Robo-advice apart from historical wealth management offerings. Firstly, investors can access the service at very low minimum threshold investment amounts, and secondly, investments carry a very low management fee (charged to run the portfolio). “Combine these elements with relatively sophisticated risk profiling and investment goal determination, and robo-advisers provide a channel that offers investment advice to everyone, regardless of how much money they have and their level of financial knowledge. As a conclusion: such automated platforms go some way to democratising participation in capital markets and can ultimately provide a level playing field for inclusive wealth creation,” said Ben Stokes, Managing Director, Actual Intelligence.

Widespread digital shift

TechFluence research shows a total investment of around $75bn in robo-advice models worldwide. There are 64 roboadvisers in Europe as of December 2016, both in the B2B and B2C space, six of them collected more than €100m in assets. London, not surprisingly, is the epicentre of roboadvice in Europe. “We are entering an exciting and transformational period in wealth and asset management. What started as disruptive innovation amongst a select few robo-advisors is quickly developing into a widespread and accelerating digital shift across the entire industry. Institutions are quickly learning to service clients through multiple channels and segments as well as empower their financial advisors with automated propositions and the tools needed to improve relationships and grow their business. Many start-up firms are emerging with new technology in the fields of AI, content and portfolio management. Whilst others are evolving their business models to include white-labelled services and forge new partnerships and distribution channels. The regulators too are playing a crucial role to ensure that, with modernisation, personalisation and scale, comes due care and attention to investor risk and suitability. There are many challenges we face together in educating clients as we move from selling products to providing solutions,” said Anthony Christodoulou, founder, RoboInvesting Europe 2017.

Pros & Cons

The Financial Advice Market Review (FAMR), jointly commissioned by the FCA and HM Treasury in August 2015 and published in March 2016, places considerable importance on the role that technology, such as roboadvice, can now play in creating a more inclusive, accessible, engaging and costeffective advice market in the UK. The rationale for this is obvious, said Bruce Moss, Founder and Strategy Director, EValue. On his point of view, by automating the advice process so that it can be delivered remotely and driven by the consumer, costs will be cut sharply as a result. At the same time, consistent quality and through documentation generated by the process will provide a full and reliable digital paper trail to ensure regulatory compliance. “Finally robo-advice offers a scalable way to deliver advice not dependent on the ability to recruit, train, motivate and retain growing numbers of financial advisers,” noted Bruce Moss. However, against these positives, two very considerable negative concerns currently exist. The first is to do with regulation. Although the FCA is supportive of robo-advice solutions in principle, the key point in practice is that the regulator has not lowered the suitability standard of the advice given. “The advice can be focused on a particular goal, but the consumer’s other financial circumstances must be considered to ensure that there are no higher priorities which might make the advice unsuitable,” stated Founder and Strategy Director to EValue. The second concern is to do with the level of consumer demand. Beyond a small number of highly engaged investors, there seems to be little sign, in the UK, of pent-up consumer demand for new ways of making investment choices. “Indeed, in the fast-growing field of auto-enrolled pensions, the vast majority of new members are not making any investment decisions at all. Instead, they are simply accepting the default option provided for them,” said Bruce Moss. It should also be mentioned and considered that some consumers need more help than others, possibly because their circumstances are complex. Rather than lose them it is important to be able to offer another option – advice over the phone or even face to face. Robo should be part of an integrated advice solution with the consumer in control and able to decide how much help is needed. The technology and advice process should be consistent between each of these options so that consumer can move seamlessly and cost efficiently between them.

RoboInvesting Europe 2017 photo reportage 

Expert comments

RICHARD THEO, CEO of Wealthify:

Robo-investing and wider robo-advice services have already changed the traditional wealth management industry for good.

We’ve already broken down all the traditional barriers to wealth management – high fees, high minimums, jargon, complicated processes and lack of transparency and access, in terms of fees and performance.

Thanks to the ‘robo’s’, wealth management services are now open to a whole new generation of investors.

Now, where to buy vardenafil people who previously couldn’t be serviced ‘profitably’ can access a new type of online service that allows them to enjoy the benefits of stock market returns, without the need to invest tens of thousands of pounds, go through lengthy face-to-face meetings, or indeed to have deep understanding of how investing works. It’s a market with massive potential – individually they may not be ‘high net worth’, but there are millions of ‘everyday’ savers in the UK and their collective cash savings is in excess of £700bn. Robo’s are democratising participation in capital markets, in the sense that it opens up universal access to discretionary wealth management services, through low or no minimums, investment accounts that are easy to set up and monitor online, and straightforward access to your money with no penalties or notice for withdrawals. The wealth management sector has been ripe for disruption for many years, and now, thanks to pioneering entrepreneurs and smart technology, that’s happening. The traditional players will start to catch up and develop their own platforms, but they’ll still be appealing to their traditional audience.

Historically, people haven’t needed to think about how best to make their money grow, since interest rates were sufficient to service ‘mass market’ savers to a fairly satisfactory level. But, double-digit interest rates are a very distant memory and with inflation seemingly on the rise, cash savings need to be rescued. Savers will look for alternative ways to grow their money. It will take a while for people to understand and appreciate the risks and benefits of investing, but eventually it will become the norm and part of everyone’s personal financial planning, alongside their pension and mortgage.

IQBAL V. GANDHAM, UK MD of eToro:

The emergence of robo advisers was viewed as little more than an intriguing fad three years ago. Fast forward to today and we see the big banks have finally woken up and reacted – and with good reason.

UBS launched SmartWealth last year and only a few weeks ago NatWest announced their intentions for a streamlined robo service, hot on the heels of similar murmurings at Barclays, Lloyds and Santander. But this is just the start. The true spirit and essence of the robo movement, if you can call it that, is about more than automation and technology. It goes beyond the ‘robo’ tag. On a macro level, the continued growth of digital businesses in wealth management will fundamentally change mass market consumer behaviour, reducing barriers between demand and supply, amplifying product choice, slashing costs, breeding accountability and ultimately handing control back to the individual. When played out, that’s the real change we’ll witness. And the companies to embrace that change are the ones that will be the most successful. For decades your average person on the street has been blindly unaware of the different ways you can invest money. It was a walled garden and, unless you had small fortune to pay the gatekeeper, you were never allowed in. With robo advisers like Nutmeg, social trading & investing networks like eToro, and other new real-time digital investment platforms, we’ve pricked the nation’s interest. They want to understand more about their investment options, they’ll seek out new ways of engaging with financial markets and they have a desire to trade and invest in a way that’s easy, smart, fast and low cost. But again, we’re at the start of the journey.

Automated platforms help break down barriers. They make things simple and quick, they bring transparency to a previously very complex and obscure environment, they enable access to services regardless of your wealth, and they harness the combined wisdom and power of many likeminded individuals into one dynamic force.

But we must be careful here. Automation alone – the robo approach, per se – does not cure all ills. As an industry we still need to think ‘customer first’ and new entrants to the sector must be mindful they don’t over prioritise technology for technology’s sake. It is the driving force behind the many great new trading and investment solutions we’re all building but we must always make sure those solutions are genuinely tailored to people’s needs. Brilliant financial services should holistically encompass a customer’s lifecycle with money – not just give them a one-off short-term fix. It’s all about them, not us. There is a new phase of fintech on the horizon, a new dawn in which we’ll see the growing importance of four fundamental things: partnerships, personalisation, big data and education. Those companies that best identify their allies and suitors and forge powerful partnerships and effortless working relationships will expand quickly. Personalisation: Understanding the customer on a personal level and tailoring services to them will come into sharper focus. The ability to combine, organise and manage big customer data will be paramount as it allows the best firms to build the best new products. And I believe we’ll see an enormous evolution in information management and education over the next few years. The perfect storm of high-quality bespoke insights and cuttingedge digital services to execute investment decisions will make for an incredibly powerful proposition.

Kate Goldfinch,

editor at The Fintech Times