HSBC is the latest of the high street banks to announce its intention to offer robo advice as they re-enter the market for advice for smaller savers with an online investment service.
The bank plans to offer a personalised robo advice service, designed to provide low-cost investment help online for people with savings of less than £15,000.
Most of the banks withdrew from providing face-to-face investment advice to the masses after the City watchdog, the FCA, doled out a series of large fines to the banks for mis-selling investments and introduced tough regulations designed to clarify the cost of advice.
HSBC is just the latest to announce its intentions as virtually all of the banks that initially considered robo advice a threat have now declared their plans for automated online advice.
NatWest recently said it would rollout robo advice later this year and Santander is in the process of developing an automated advice service having invested in robo provider SigFig.
The Treasury last year flagged concerns over the generally low levels of financial literacy and the large numbers who do not have access to advice; FCA has encouraged the development of automated advice to help plug the so called ‘advice gap’.
Head of its UK wealth management business, HSBC’s Taylan Turan, said it planned to provide fast and low-cost access to investment advice, specifically tailored to individual requirements.
fast and low-cost access to investment advice, specifically tailored to individual requirements
Customers are asked about their financial circumstances, including any debts, and set their individual goals; they are then recommended a risk-rated investment comprising shares, bonds, or exchange traded funds.
HSBC said it would select from a line-up of internal funds as well as those managed by third parties, and would offer ISAs as a tax-free wrapper.
Mr Turan said: ‘The entry point is going to be significantly lower than £15,000, so any customer with any kinds of savings, suitable to consider investments, can gain access to this advice. It’s personalised as two customers with the same amount of potential investments will not necessarily have the same recommendation, even if they have the same risk profile . . . we are one of the first to do this.’
Although not yet disclosed, Mr Turan said HSBC’s fees will be transparent and competitive, partly through the use of low-cost passive investments.
HSBC still has 550 advisers delivering face-to-face advice on investments, tax and pension planning to customers with more than £50,000 to invest.
Survey highlights challenge for robo advisors
In the meantime, a survey of 15,000 people across 15 European countries conducted by ING suggests that 91% would not let a computer programme make and act on financial decisions on their behalf.
It found that in the UK, 42% of those questioned had no desire for automated financial activities, with just 28% saying they would like a computer programme to give them advice but not make decisions.
One fifth – 21% – of UK investors said they would allow a computer program to make decisions if they got final approval; 6% were unsure what to make of robo advisors.
The findings highlight the challenges faced by the UK robo market in getting its message out there and building trust.
it is important that as an industry we learn more about where confidence in this type of tech breaks down
The cost of customer acquisition is of particular concern to the whole raft of start ups in the UK that lack the ability to leverage an existing customer base in the way that the banks can.
With many in their infancy, it is currently unclear what the level of customer uptake has been, and what level of assets under management (AUM) the robo advisors have achieved.
Seen as offering great potential to robo advisors, and more receptive to the concept than Germany and France where 47% and 51% respectively see no need for automated financial advice, the UK has recently seen the launch of Gemma Godfrey’s new online investment firm, Moola, and the FCA has just granted Canadian giant Wealthsimple authorisation to launch.
The US is the world’s most sophisticated digital wealth market, where just 34% of those surveyed expressed no desire for automated advice.
ING said its the study suggests people are reluctant to give up control – or perceived control – over decision making and this is the case even if outsourcing the decision will lead to a better outcome; across Europe people are wary of allowing computers to make decisions on their behalf, and even less comfortable when there are large sums of money at stake.
‘Letting algorithms make money decisions for us has the potential to be really advantageous and free up some headspace – yet we found that many people are reluctant to give up control of these decisions,’ ING behavioural scientist Nathalie Spencer commented.
‘As newer technologies like robo advisors become more prevalent, we may see people start to embrace the personalisation and convenience it offers, but the desire to control decisions will most likely mean that most will always want final approval.
She added: ‘Given that often computer programs can outperform humans, it is important that as an industry we learn more about where confidence in this type of tech breaks down. This will be key in trying to help improve people’s financial positions.’