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Platforum: The human face of robo-advice

Heather Hopkins

There has been much debate about the role of robo-advisers and whether they will displace the traditional financial adviser, fill the advice gap or perhaps do both. Our view is that they will be used mostly by financial advisers rather than the mass market of investors. What is more, we envisage robo-advice helping to fill the advice gap by reducing fees. Let me back up a bit to provide the context for this view.

Brand and reach

In the US, where we have seen the strongest adoption of robo-advice, it is interesting to note that the numbers are still relatively small among the start-ups. When it comes to the leading US start-ups, first and second ranked Wealthfront, (established in 2011) and Betterment (established in 2008) had $2bn and $1.4bn in assets as at February.

The more established and recognisable Schwab tells a different story. Having launched its version of robo-advice in Q1, the first six weeks saw the service obtain $1.5bn in assets. Results published this month show that assets grew to $3bn at the end of Q2, with 39,000 accounts opened. This just shows what a difference brand and reach can make to scale.

In our regular surveys with consumers and investors, we ask about the factors most important in selecting a platform. “A well known and trustworthy brand” consistently comes out on top, beating price by a wide margin. Schwab has the brand and reach to attract the masses but it also has something else: a human being to back it up.

Human support

Having the human support to back it up is another factor we believe is crucial for the success of robo-advice. We know most investors take a blended approach, both seeking advice and going self-directed. We believe we will see a similar pattern with robo-advice.

Most investors are happy to manage their investments themselves but will want to check in with a real person from time to time. Often, this involves wanting to make sure the plan makes sense with a real live person, as well as to get some support and guidance on the decision.

Working together

Back in the US, much of the take up of robo-advice has been among financial advisers themselves. These tools, slick as they are, can still seem intimidating to the average investor. As soon as you start discussing risk-rated portfolios or asset allocation it can all seem a bit too complicated.

Robo-advice offers a terrific opportunity for advisers to improve productivity and reduce fees. This, in turn, will help reduce the advice gap.

We will be debating the future of advice and the role of technology at the Platforum Annual Conference, produced in partnership with Aegon UK, on 1 October. In addition to debating the role of technology and digital engagement, we will hear from Aegon UK chief executive Adrian Grace about re-shaping consumer access to, and engagement with, retail investments. We will also debate vertical integration and the prospects for platforms, income solutions for drawdown and the future of regulatory reform.

We will cover outcomes of the debate but also hope to see some of you there.

Heather Hopkins is research director at Platforum



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. After 10 years involved with distribution life pensions and investments over the internet including online advice I think there has been a lot of theory out there without a huge amount of practical experience.

    Automated ‘end to end’ online advice is difficult to make work outside of straightforward vanilla and standalone solutions – so it won’t by itself tackle the much larger ‘Don’t know what I’ve got, Don’t know what it’s work, Don’t know if it’s right for me’ consumer with existing investments including those purchased through bancassurers. A large number (probably the majority) of consumers also still value a human voice to reassure and guide.

    I agree with Heather that intelligent use of technology to transform and streamline a human led advice process will still be where the big advances can be made for consumers, at least in the short to medium term.

  2. The challenge around robo advice is actually one of client attraction. Wealthfront, Betterment etc may have perfectly decent propositions but it costs them too much to get customers so they are failing (they may have got assets but at a cost of $1000+ a time so have run through their capital several times over). They use low charges as a means of attraction but don’t have the trust of F2F or the monopoly of other tech companies (eg Google or Amazon).

    Schwab, Fidelity and Vanguard have huge numbers of clients who often arrived direct but then found they needed help. Schwab and Fidelity can provide that help for 1% even for relatively low balances by mixing tech, phone and F2F in prescribed ratios – the more money a client has the more personal the service but price as a %age of assets varies little. I think both now make as much on advice as on investment, trading or admin and almost offer the other services as loss leaders (a lesson for platforms).

    Few advisers have anything like their scale but the idea can still be replicated by all with existing client banks – just as reports wouldnt be written in long hand then typed, if you can do it online more efficiently, eg some factfinding or auto rebalancing, then do so but trust is built face to face so the blend of personal and tech is crucial.

    If tech frees up some adviser time then the adviser can see more clients and/ or make less wealthy clients profitable.

    If you want to attract clients tech won’t help much and that’s the problem with the start ups.

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