Vanguard: ‘Pure robo-advice cannot work in the UK’

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Vanguard says the “pure” robo-advice model prevalent in the US could not work in the UK due to FCA regulation and the role of regulated advice.

Last month, Money Marketing revealed Vanguard is preparing to launch a direct-to-consumer offering to rival the likes of Hargreaves Lansdown and Nutmeg.

But Vanguard business development manager Rob Fisher says for any firm simply replicating a US pure robo-advice model, without the involvement of an adviser, would not work in the UK.

Speaking at the Wealth Management Association annual summit in London last week, Fisher said:

“It’s clear that the pure US robo-advice model couldn’t work in the UK.

“Advisers in the US are moving away from asset managers and looking into new models including robo-advice solutions. There are different connection points.”

Vanguard’s Personal Advisor Services, launched in the US in May 2015, is a hybrid robo-adviser and available to anyone who has at least $50,000 (£40,000) to invest. It has an annual flat fee of 0.3 per cent of assets under management.

In contrast with the Charles Schwab model in the US, Vanguard’s robo-advice services are provided by an adviser, which Vanguard says means it could work within the UK regulatory environment.

Speaking to Money Marketing after the event, Fisher adds the rules governing digital advice are  different around the world. For example, he says, most robo-advisers in the US would not meet the current FCA standards on suitability that exist in the UK.

He says: “That said, regulations on both sides of the Atlantic are evolving, both in response as well as to encourage digital advice.”

Speaking at a separate panel debate, Standard Life Wealth chief executive Richard Charnock says while robo-advice offerings are on the rise in the UK, he claims these would be channelled more successfully through banks rather than wealth managers or adviser firms.

He says: “There are 180 licences to register robo-models at the regulators at the moment. But the view is once these models get into the big banks, if you connect robo-advice with the big data they’ve got, all the money transmission history, all the credit card payment history, and all the behavioural information they can draw from the transactions, they can feed that back into the robo machine to make it behaviourally tailored to the individual. That is the future.”

JM Finn & Co head of investment management Sarah Soar said potential disruptors like Google or Amazon “will start to take over” in wealth management but Charnock believes even for those tech firms regulations would be “too tight”.

WMA deputy chief executive John Barrass argues a different culture, infrastructure system, legal framework and scale are the major reasons why the UK is still far from a pure robo-advice model.

He said: “Some of the laws in the UK are not adapted to the use of technology in firms. Also, the US market is much bigger than the UK so you have more opportunities as a wealth manager with clients to offer robo-advice services.”

But Fisher said: “Looking ahead I see no reason why in time, digital advice won’t become an everyday reality here. That’s not to say the machines will replace human advisers – they still can’t deliver on three key components of good personal advice, namely empathy, trust and fine judgement.”

Adviser view

Roy McLoughlin, Partner, Master Adviser

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Robo-advice is essentially about answering some questions and the trend has actually been driving more enquiries to advisers. People underestimate how much face-to-face advice is worth. Consumers are going to be using elements of robo-advice but they are not going to substitute it for face-to-face advice.