The term may have few supporters in this fledgling sector, but described as an ‘online application that provides automated financial guidance and services’, ‘robo-adviser’ can now officially be considered to have entered the public lexicon by being included on a site that focuses on current language and practical usage.
However, far from being job done in terms of achieving public awareness, Muckler considers this just a very small victory on the way to improving financial education and engaging a whole new generation of investors.
Despite widespread antipathy amongst providers, robo advice is likely to remain the blanket term applied by the media to describe the variety of automated investment platforms dedicated to wealth creation; that is something that we will work with as ever more sophisticated wealthtech propositions are developed.
Even the use of the word ‘guidance’ in the dictionary definition of something to which the moniker ‘adviser’ is applied, offers plenty of opportunity for pedantry.
City regulator, the Financial Conduct Authority (FCA), paved the way for the development of robo advice in the UK in response to the large number of people that found themselves with no access to financial advice following the government’s 2012 Retail Distribution Review (RDR).
By creating a ‘sandbox’ of light touch and a supportive regulatory environment, many companies from start ups to financial services heavyweights, set about creating a wide range of a automated advice and discretionary investment management models.
the word ‘guidance’ in the dictionary definition of something to which the moniker ‘adviser’ is applied, offers plenty of opportunity for pedantry
Despite having millennials in their cross-hairs, and a heartfelt ambition to democratise investment, many of the early adopters of robo advice were actually more mature, relatively experienced investors attracted by the platforms’ simplicity and low costs.
These investors are reasonably comfortable with weighing the relative merits of a low cost solution based on passive investments as opposed to one that lowers the barriers to entry to actively managed funds; it is for the providers to make their case.
By way of an example, consider the contrast between a start up such as Wealthify which will allow you to invest from just £1 into a portfolio of low cost ETFs and Click and Invest, Investec’s recently launched ‘online investment management service’ which will require you to lodge at least £10,000 which is invested in its actively managed funds.
Most of the new platforms offer an engaging and compelling user experience that serves up a range of ‘what if’ scenarios, deliver education and good content and enable the investor to feel that they have been integral to the investment decisions that are made.
The precise definition of what constitutes financial advice has yet to be set in stone, with some contending that an automated platform that invests on a discretionary basis should be labelled a ‘robo investor’; this is not unimportant because should something go wrong, it matters who has dispensed advice, or given guidance.
However, pro tem, and in the spirit of celebrating its achievement, Muckle is content to allow these variants to coexist under a ‘robo-adviser’ banner.
The reason that we’re determined not to get bogged down over dictionary definitions is that with its commitment to encouraging long term savings and investment, Muckle sees this as the end of the beginning and where the real challenge of education and engagement begins.
With a recent survey for Boring Money suggesting a client acquisition cost in the region of £500 it seems inevitable that over time there will be some consolidation in the space, and equally so that there will be an increasing number of B2B relationships forged with a wide range of partners from IFAs to tech firms and etailers.
Platforms aimed at DIY investors such as the online brokers report brisk business, particularly in self-invested personal pensions as people take advantage of the pension freedoms launched in 2015, and many now offer model portfolios as a ‘Do it With me’ option.
Muckle sees this as the end of the beginning and where the real challenge of education and engagement begins
There may be the opportunity for the robos to offer a ‘Do it For me’ solution for existing investors that want to make regular monthly contributions into an instantly diversified and risk managed investment, as well as managing part of their portfolio themselves.
A recurring theme across Muckle and sister site DIY Investor is ‘Do it Yourself, Do it With me, Do it For me – just don’t do nothing’.
If its entry into the Oxford Dictionary represents a minor victory, the challenge that we all now face is to reach out beyond those that can currently articulate the active vs passive debate and reach the great majority of people that are currently not engaged in their finances in any material way.
‘Mony a mickle maks a muckle’ is at the beating heart of Muckle’s ambitions and we are passionate about engaging the next generation of investors as state dependency is inevitably replaced by financial self-reliance.
Those across the Pond got the drop on those of us in Blighty when it comes down to their engagement in their personal finances; the 401k/fifty nine and-a-half conversation is a staple around US dinner tables. Having wrestled with student debt for many years, US millennials are far more engaged with their personal financial circumstances with many stating FIRE as an ambition – Financial Independence, Retire Early.
In truth, the greater engagement in the States is born of necessity and with high levels of student debt, squeezed wages, high cost of accommodation and uncertain pension provision it would be reasonable to believe that all of the key drivers will be every bit as relevant here; it is our collective challenge to engage with those that have hitherto considered investing not for people ‘like them’.
A recent survey said that the main reasons that people didn’t invest were a) they didn’t have any money b) they didn’t want to risk losing the money they had and c) they didn’t have sufficient knowledge about investing.
Granted, it can’t put money where there is none, but education and improved financial literacy appears to have a very large part to play; Muckle is engaged in a range of educational programmes including taking financial education into schools.
Most people would accept that it is better to do something rather than nothing and that to do it for a longer rather than a shorter time, will probably deliver a better outcome – it is for all of us in the automated investment space and beyond to turn best intentions into actions.
The challenge is real, and it’s all around us – those that haven’t started saving for their pension yet don’t come with a flashing beacon on their head; they are our friends and our family, maybe our children, that just need a helping hand over whatever barrier is preventing them entering the financial fray.
Key to this engagement will be considering outcomes; much of the debate to date has, for perfectly understandable reasons as robo advice sought to establish itself, centred on the mechanics of risk management and the sophistication of the algorithms powering their asset allocation.
However, the future should focus on the range of outcomes that can be achieved in various scenarios whatever objective is set; at a recent focus group Muckle mooted the potential of delivering a short sharp shock with the financial services equivalent of the diseased lung on a cigarette packet, but that was widely condemned as a move that would be likely to cause people to do nothing.
the future should focus on the range of outcomes that can be achieved
Another given, is that following generations communicate with each other and assimilate information in a different way to their parents; indeed society is changing forever – we are constantly reminded that the future of employment will be different as the ‘gig economy’ becomes more prevalent, the ‘subscription generation’ shuns home ownership and the sharing economy kicks in.
Muckler recently met with an ex City grandee over a glass of something most agreeable and heard how his daughter had mocked him because he said he had ‘gone into his bank’; evidently his daughter’s bank didn’t have one to go into and it was ‘named after a bird, or something’ (www.starlingbank.com)
So how on earth can we expect to get the message of financial education across when to the next gen we are the personification of ‘Dad dancing’?
The truth is that, even though they communicate in a different way, the challenges facing young people today are extremely familiar, if possibly more acute, and the answers are pretty much all there; starting early and investing for a long time is rarely the wrong answer when establishing an investment strategy.
Financial education has to be across generations; those seeking income in retirement should have a working knowledge of the options available just as those setting out on their financial journey should have access to information and support.
For the newly recognised ‘robo-adviser’ there is a requirement to ensure that awareness and understanding of their product is high and that is in no small part a ‘traditional’ marketing challenge; beyond that is the requirement to reach out to a younger generation, and it is here where the ways in which they interact could stoke the adoption of robo advice.
Micro-savings apps such as Moneybox are very good for engagement and getting people into the mindset of savings or investment (more); one thing guaranteed to light up social media is when there’s an element of competition, and once a platform comes as ‘highly recommended’ its cult status is guaranteed.
There’s little more excruciating than watching those more mature attempting to connect with the ‘yoof’, but it seems that there is the opportunity for an exchange and dialogue that draws on experience and encourages greater financial understanding and engenders a more positive relationship with money.
When Muckler was packed off to university it was with a cheery wave and three years worth of beer tokens from the local authority; no expert on student debt then, but those only used to seeing interest rates this low may glean something from his experience of seeing interest on his mortgage hit 15% in 1990.
Banks are being put on high alert as they could be facing £30bn of write offs if interest rates were to spike, as household debt, credit cards and car finance hit record levels; with the benefit of hindsight would anyone really advocate consumers to gorge on cheap credit and leave themselves so vulnerable?
Muckle doffs its cap at the collective achievement of the sector in raising levels of awareness such that it attracted the attention of such an esteemed organ and looks forward to being at the heart of things as we find ways to educate and engage a new generation of investors.