The financial press is full of articles about the rush to offer robo-advice and the Financial Conduct Authority is even offering some degree of shepherding around creating a robo-advice offering, so it would appear that it is being heralded as the “Next Big Idea” in financial services.
For clients, robo-advice is seen as a way of widening access to financial advice, by using an automated advice process, probably on a smartphone or tablet, progressing through a series of questions until a need is assessed and an investment portfolio constructed. As there would be minimal human interaction, the costs would be much lower, anticipated to be roughly half of the normal charges, but there is still a fog around whether there would be the full protections offered by conventional advice. Pressure from the regulator would suggest that the normal protections will prevail, so advice decisions will need to be robust, auditable and based on best (human) practise.
There are a number of robo-advisers already functioning in the international and UK space, but they are confined to wealth management and the construction of portfolios with a predetermined risk profile and expected rate of return. One interesting phenomena is the accelerated take up of these services by the already “rich” and the pressure it is placing on the banks to offer competing services.
No current robo-advice offering is a substitute for a real flesh and blood adviser; even the robo-advice companies currently offering a service explain that, but it does represent a cap on what can be charged for wealth management. This limitation on what the market will stand will encourage advisers and banks to look for service as the new battleground, with hopefully, good outcomes for clients.
For Martin-Redman Partners, robo-advice is not seen as a direct threat, as our proposition goes further than simply wealth management. Additionally, our ongoing advices fees are similar or less than those offered by the current players, so there is no cost pressure and considerable service benefits with dealing with real people.
One issue that comes up regularly is client education and expectations. In a face to face conversation, it is easy for a human adviser to see where the client has moved from understanding to unknowing or confusion; it is hard to imagine a scenario where the robo-adviser realises they have lost the client and tracks back to aid understanding and embracing the process.
Computers work best with simple, repetitive tasks that can be defined with a series of yes and no questions. Computers can struggle with competing desires and complex problems with multiple potential solutions. But the biggest problem is defining the span of holistic financial advice in software understandable by a computer; some of us have been in the business more than 20 years, novel scenarios and solutions are still coming up!
If you would like to know more about how we can help you plan and realise your financial goals then contact us at firstname.lastname@example.org or call us on 01223 792 196.
The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.