Robo-advice is a term used in US and online for algorithm based portfolio management systems but evolving into many more useful digital wealth management systems in a market worth approximately €452bn across the EU.
Why now? What are the Market Drivers?
The market is growing because a large amount of investment products are bought without advice - regulators restrict advice through authorised and qualified advisors but 39 new digital businesses are working with FCA Innovate Hub to deliver Robo-advice.
The concept is coming of age in the digital generation who are coming into wealth. Also, the older generations are interested in alternative wealth management tools as traditional active management funds have not met customer performance expectations, despite high fees.
The FCA is helping with a positive regulatory framework and a collaborative ‘sandbox’ approach.
So what is Robo-advice in plain(ish) language?
It is smartphone and Pad technology which provides a capability which is not usually available to individuals and which provides a degree of automation in investment profiling and risk management.
Advocates say that one day Robo-advice will address any form of advice given online and will take over from human financial advisors like digital replaced film in photography.
The key customer benefit is in saving time and getting advice when you want it.
However, Robo-advice currently focusses on customisation of the near-realtime investment experience and is not therefore a real benefit for the client who wants only occasional wealth management interaction.
Indeed, advice is not the predominant product but rather digital profiling and analysis which supports hybrid advice/suggestions and uses efficient interfaces as well as financial/payments technology to manage your money.
From a consumer point of view there will be an issue about performance as consumer context varies. Robe-Advice needs to provide market behavioural models that are aligned with customer needs and benefits not just ‘flashy interfaces’.
The risk to the Robo-advice developers is that most longer term value seekers don't seek the short term responses or systems for instantaneous tracking of their portfolio - basically they don’t need or want Robo-advice.
Therefore, the discretionary nature of using Robo advice puts significant risk on FinTech business models and development - ‘we’re all beta products’ - few discretionary digital products pass the test of time!
In the short-term - Robo-advice is likely to be restricted to investment platforms and in particular:
User friendly interfaces;
Personalisation of the money platform;
Risk attitude support.
These benefits will be achieved in the short-term with lots of Fintech 'beta' choices rather than delivering the challenging 'grail' for value matching clients with investment propositions or offering clients a reliable investment strategy.