View more on these topics

Nic Cicutti: Man vs machine? Robots win every time

Cicutti-Nic-2014-MM-700.jpg

Will robots ever take the place of financial advisers? This was the question asked last week in Money Marketing, amid suggestions that the market for automated investment tools and low-cost technology-driven solutions will gradually replace face-to-face advice.

Money Marketing reported on estimates by US research firm Aite Group, which suggested the value of assets managed in this way will more than triple to £39bn in 2015 from about £10bn at the start of 2014.

It is not clear whether this sum refers to US- or UK-based investments. Either way, while the amounts involved are tiny compared to the trillions of funds invested on the basis of ‘human’ advice, it is easy to see how the amount managed by robots could increase exponentially.

Intriguingly, the response from advisers quoted in the article seemed mixed, with some suggesting the main impact would be on execution-only advisers such as Hargreaves Lansdown operating in a similar online space as so-called ‘robo-advisers’.

Jonathan Davies Wealth Management managing director Jonathan Davies was quoted as saying: “Robo-advisers will do well for certain periods of the investment cycle but not on a long-term investment strategy. The problem is when investment conditions shift. I think I would want to stick with a real person with a real brain.”

He is implying, presumably, that advisers are human beings who can recognise changes in investor sentiment and can advise their clients on appropriate courses of action more swiftly than a robot can.

Hopefully, Jonathan will not mind if I disagree. The real challenge for advisers and their clients is less likely to come when markets are falling than when the issues they are seeking solutions to have a human component to them, like having a baby or planning for long-term care.

Even then, it is likely that within the next five to 10 years robo-advisers will be enabled to come up with far more personalised and tailored financial answers to issues such as these.

In any event, the real problem is that, in my experience at least, many advisers are about as effective – and proactive – as robots when it comes to discussing investment decisions with their clients.

Many years ago, before the demise of Peps and their replacement by Isas, I was slightly surprised to receive a large cash payment for work I had carried out long before.

I had previously agreed with my IFA what funds to invest in as far as my £6,000 Pep was concerned, my personal and company pensions were fully funded and I had already maxed out my Tessa allowance. The question, then, was whether there were any appropriate tax shelters for a further sum running into several thousand pounds.

A few days later I received a phone call from one of the advisers’ administrators to say that I would shortly receive an envelope in the post with an application form. They said I should sign and send it back with a cheque for £3,000.

Two days later the envelope arrived with an application form for a Fidelity Pep wrapper (with very high charges) and Vodafone as the single-company share recommendation.

Why Fidelity? Why Vodafone? I called the administrator and she did not know. The adviser himself was too busy to tell me. So I asked around: it seemed Fidelity was punting Vofadone shares on the basis of one or two brokers’ reports suggesting this was an up-and-coming place to invest.

Robotically – and without independently verifying these claims – my IFA sent out these wrapper forms to any of his clients interested in a single-company Pep.

Thankfully and unrobotically, I was able to carry out some quick research. I found a much cheaper Pep wrapper and chose another company to invest my £3,000 in instead. I also ended my relationship with that adviser.

In the past 16 years my single-company Pep has enjoyed returns of almost 700 per cent. Vodafone’s share price, which stood at 498p on 1 April 1999, closed at 217p on Friday last week.

An unusual story? I doubt it. Fidelity did exceptionally well that year through its packaged single company Pep application form, with many hundreds of advisers robotically sending them out to gullible punters.

Egregious as that so-called advice was, in the years that have followed there has been a raft of stories about clients’ money being stuffed into all manner of unsuitable investments, from Arch cru to Keydata, largely because too many advisers robotically took for granted unrealistic claims about the safety of these funds.

Even worse, my experience suggests that, contrary to Jonathan Davies’ assertion that ‘human’ advisers are quick off the mark when it comes to contacting their clients in the event of a change in the value of their investments, this rarely – if ever – happens in reality. Mine have never done so and hundreds of thousands of clients will attest to the same fact.

Which is why I suspect the real reason for the likely exponential growth of robo-advisers over the coming years is that they are generally much more reliable than their flesh-and-blood counterparts. In a straight choice between humans and robots, the machines win every time.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk. Follow him on twitter @NicCicutti

Recommended

1

Man and machine: The human face of robo-advice

Robo-advice tools which allow firms to automate certain parts of the advice process are being tipped to take off in the UK. While much attention has been focused on the launch of algorithm-based investment portfolios, other models are being developed which experts say could help advisers to reduce their costs while retaining the human touch. But […]

Walne

Santorini Financial Planning to launch robo-advice service

Santorini Financial Planning is to launch a robo-advice service for those with as little as £1,000 to invest. The Loughborough-based advice firm will launch Simple to Invest, which is powered by Parmenion, in the coming weeks. The service offers a fully auto-mated advice process, with telephone support available from Santorini if required. Investors will be […]

2016 Global Survey of Individual Investors: How is investor behaviour rewriting the job description for financial professionals?

Trapped between expectations for near double-digit returns and strong apprehensions about investing in persistently volatile markets, investors worldwide are of the opinion that professional financial advice is worth the fee. But even though they believe individuals who work with a financial professional are more likely to achieve their goals, investors have a clear vision of […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. “Either way, while the amounts involved are tiny compared to the trillions of funds invested on the basis of ‘human’ advice, it is easy to see how the amount managed by robots could increase exponentially.”

    If the expected rate of growth this year is a mere quadrupling from £10bn to £39bn, then the robo-funds will have to go some to increase exponentially to £1.5 trillion. Someone please tell Nic that “exponentially” does not mean “a lot”, this is supposed to be a financial publication. Call me a pedant if you must but it’s like having a football correspondent who doesn’t understand the offside rule.

    • “If the expected rate of growth this year is a mere quadrupling from £10bn to £39bn, then the robo-funds will have to go some to increase exponentially to £1.5 trillion.” It would only take a further 2.5 to 3 years at that rate.

  2. Slightly odd Nic as your argument is more against robo advice/robo action: Without your human intervention and research you would have ended up with Vodafone; Instead you chose to stock pick with your own mind and opinion and achieved a great result.

  3. Scott Gallacher 1st October 2015 at 3:58 pm

    Hi Nic,

    A couple of points to make on your account.

    Firstly, with regards to the advice to buy Vodafone, given that Vodafone did c+60% for the rest of 1999; consequently it is possible that you adviser would have contacted you later in the year with an alternative recommendation. I would point out that I have no vested interest as I was not advising on single company PEPs.

    Secondly, computers are programmed by people so they idea that they might be cleverer is somewhat questionable. It’s the old principle of rubbish in rubbish out.

  4. Cretins v Financial Journalists. Indistinguishable.

  5. Would this article be better written by a metal headed machine? Talk about scratching around looking for something to write about. Yup Nic, you’re out.

  6. @ James Watkin: there are already robo-journalists who write business and sports reports based on simple formulae. Thankfully, they are currently not as good as real human beings. I have no doubt that in, say, 5 years, they may well approximate some of the more mundane report writing that journalists deliver. It will be basic and sound incredibly stilted – therefore, often unreadable. A bit like many American journalists trying to write about “soccer”. But for a typical 300-word company results piece, or a factual football match report, maybe that doesn’t matter too much

    Happily for now, journalists are, ultimately, paid not just to write facts on the basis of a formula but to give an opinion on the basis of various assembled facts. It is precisely because there is more space for opinion rather than bald analysis that journalists will probably continue to earn a crust for some time to come.

    @ Scott Gallagher: knowing my financial adviser as I do, I don’t believe for a nano-second that he would have been reviewing my portfolio in 12 months’ time.

    @ Sascha Klauß: exponential growth is defined as when the growth rate in the value of a mathematical function is proportional to its current value. For example, Moore’s Law in relation to the number of components per integrated circuit doubling every two years. In that context, “exponential growth” is a valid term for me to to use with regard to the use of robo-advised funds under management. Your failed attempt at pedantry, even on your own terms, marks you out as both inarticulate and unable to understand simple mathematical language.

    @ Robwhy?: Valid point. I tend to see it slightly differently. I think a good adviser who does his/her homework and uses a combination of appropriate analytical tools, as well as human skills, has the potential to “beat” a machine on its own – depending on the level of sophistication of the machine’s own systems. However, a decently programmed robo-adviser will always beat a lazy and badly-prepared adviser. Given my opinion of many advisers, you may infer that the machine will generally tend to win.

    @ Paul Barnard: You’re clearly not a machine. You’re also not quite human. You are….. yes….. wait for it…. a troll. Ooops.

  7. ‘Given my opinion of many advisers, you may infer that the machine will generally tend to win.’ …. And you have the temerity to call Paul Barnard a troll!

Leave a comment