The current crop of robo advisors and savings apps deliver an eclectic mix of genuine innovation, a soupcon of digital retouching and the odd pig in lipstick; the situation is hardly helped by the ongoing debate about what constitutes financial ‘advice’ and when we look back at the pioneering days of fintech, it may be that ‘robo advice’ will be considered to have been something of a misnomer.
If we settle for something like ‘automated investment management’ we won’t go too far wrong and as the accumulation of wealth becomes just one element of future ‘wealthtech’ propositions, we may question why we became embroiled in the conundrum in the first place.
It could be argued that if the start-ups and the incumbents delivering robo advice succeed in their objective of democratising investment, then it would be churlish in the extreme to get bogged down in such pedantry.
However, things will undoubtedly move on apace as there remains a huge appetite from investors to pump money into robo advisors and at some stage they will expect a big pay day; lessons will be expected to be learned and missed opportunities seized as robo advice 2.0 becomes a reality.
A number of recent high profile launches have effectively put a slick user interface on a traditional asset management business; the fusion of automated sign up and risk management has been paired with active fund management and is sold as offering the best of both worlds.
In a world where everything is up for analysis and comparison, it may well be proven that this approach delivers the best outcomes; however with actively managed funds almost inevitably more expensive than passive index trackers, this will be another skirmish in the active vs passive debate, played out as a Robot War.
an eclectic mix of genuine innovation, a soupcon of digital retouching and the odd pig in lipstick
Robo advice 2.0 will not be able to serve up more of the same; one challenge faced by asset managers steering investors towards existing funds, will be to introduce a higher degree of personalisation.
Customers will want to feel that their aspirations and personal circumstances have been fully considered in the construction of their investment portfolio rather than them having been shoe-horned into an existing solution; a sense of ownership of their investment choices will be a strong loyalty factor.
That in no way precludes those managing their own investment funds, but the challenge will be for asset managers to create a personalised investment experience constructed upon the strengths of an established financial institution.
In this regard, the established providers could have a key advantage over the start-ups; it may be easier for the institutions to deliver a more personalised approach to customers with whom they already have a relationship than it is for a new entrant to establish a comparably strong relationship.
However, this presupposes that brand association is positive when it comes down to banks and financial institutions; if trust has been eroded to such an extent that the old guard has been stigmatised, that could leave the door ajar for the anti-brands and challenger banks.
Whichever the direction of approach, those peddling robo advice 2.0 will have to achieve the right balance between the irrepressible energy of the fintechs and the reassuring calm of the institutions.
Ultimately those that deliver the optimum customer experience, supported by the most innovative and engaging delivery mechanisms, should prevail; technology is a key driver, but it is vital that it is employed in a way that reflects the ever-changing ways in which people interact and assimilate information.
A successful 2.0 solution must reflect a client’s personal aspirations and demonstrate why a particular investment strategy has been selected; institutions with a broader relationship can ensure that the various strands of a customer’s financial affairs dovetail.
the customer can feel that they are in control rather than on the end of an anodyne, one-size fits all solution
This is where robo advice 2.0 can become just one part of an all-encompassing wealthtech proposition that allows a client to weigh up their various checks and balances, and make decisions that from a purely ‘logical’ perspective may not make sense.
For example, an individual may be able to achieve a 5% return on their investments whilst servicing a loan at 3.5%; by any purely logical measure, that would be satisfactory, but to those kept awake by debt, the ‘right’ decision may be to pay off the loan.
By accommodating such anomalies the customer can feel that they are in control rather than on the end of an anodyne, one-size fits all solution; this process begins with a highly detailed information gathering stage, allowing the customer to make it as detailed and personal as they wish, and then follows through into the investment management process by reiterating and reinforcing how each decision reflects and supports a particular objective or personal preference.
The sense of empowerment that a good robo advice 2.0 platform will deliver will represent a significant development and will be a key selling point over traditional advice; it may be the factor that reverses or lessens the current trend towards ‘hybrid’, ‘cyborg’ or ‘bionic’ (you pays your money and takes your choice) solutions that sees robo advice delivered by a fleshy advisor.
What does it mean for banks and institutions?
Incumbents are likely to offer robo advice 2.0 as part of a suite of products to existing customers. If a customer sees robo advice as the best investment solution at a particular juncture it will be readily available; when the decision is that they would prefer a more personal and advised service that will be on tap as well.
Flexibility and choice will be key, as well as the ability to move seamlessly from one product to another whilst maintaining good oversight; this is one area in which the large, established players should excel as long as they can integrate their systems.
Whereas institutions should be able to cater for all variations on advice, the start-ups may find themselves restricted to whatever approach they adopted in their business plan.
So, what might robo advice 2.0 look like?
When robo advisors first came on the scene, the technology that underpinned the various offerings was almost sufficiently different to be the story in its own right.
Subsequent developments saw a bit of jostling as each sought to establish their USPs, and the institutions, unwilling to be left behind, came up with solutions of their own.
However, robo advice has yet to make it as a mass market proposition, and in planning its future, much more careful consideration needs to be given to the size of the potential audience and more importantly what real-life problems the robos’ products and services are going to solve.
Therefore, robo advice 2.0 needs to look beyond clever technology and start by being far more customer-centric; personalisation will be something that sets the new breed apart.
robo advice 2.0 needs to look beyond clever technology and start by being far more customer-centric
By and large the robo advisors have done a good job in simplifying the investment process, and have made it quick and relatively inexpensive to establish an investment portfolio; robo advice 2.0 will major on what that investment is ‘for’ – objectives and milestones that define a customer’s financial journey.
Whether saving for a house deposit, for school or tuition fees, or planning for retirement, a personalised and human element should be foremost, and any solution should be flexible enough to recognise and reflect that things change as an individual’s aspirations or circumstances change over time.
Anyone considering this space will have plenty to occupy their minds; how to differentiate their proposition in terms of their offer, their cost structure and their user experience.
It should be taken as read that those seeking to deliver robo advice 2.0 will have worked out that customer engagement and personalisation are a given; pricing will need to be transparent and the integration of other services should be effortless.
The pachyderm in the robo room
If the challenges facing robo advice 2.0 are so clear cut, and the solutions therefore relatively intuitive, could we be missing something?
We think so.
For all the benefits that evolving technology and increased personalisation can deliver, the simple fact is that general levels of financial literacy and engagement remain stubbornly low; if robo advice 2.o is going to be genuinely disruptive and a force for good, it has to find a way to engage those that have hitherto remained impervious to financial services, thereby growing the market.
Improved financial education is absolutely vital and Muckle is engaged in a range of initiatives to improve levels of understanding from a young age.
To many it is as plain as the nose on their face that financial self-reliance simply has to be the future as state provision lessens, yet we are still a very long way adrift of the States where the 401k/fifty nine and-a-half conversation graces so many supper tables.
we are still a very long way adrift of the States where the 401k/fifty nine and-a-half conversation graces so many supper tables
DIY investing platforms such as Hargreaves Lansdown and Selftrade have experienced something of a boon since RDR changed the way in which advisers levied their fees, but if it is to succeed in its quest to truly democratise investment, robo advice 2.0 needs to reach out to those that have still to engage.
This has, of course been the Holy Grail in financial services for decades, yet some of the biggest brains in the City have yet to crack it; with the advent of big data, the large tech companies such as Google or etailers like Amazon may find it easier to strike a chord than some of the institutions.
Where persuasion and nurturing has failed, it may be time to deliver the short, sharp shock; the financial equivalent of ‘smoking kills’ on cigarette packets.
In fact it is not difficult to deliver some stark warnings; even when contributions to auto enrolled pensions rise to 5% p.a. in 2018, ex pensions minister Steve Webb estimates that will be just 20% of what would be required to deliver an acceptable income in retirement.
There is no doubt that robo advisors will have a vital role to play in showing a range of outcomes based upon varying levels of contribution, length of investment and risk; bring the ‘miracle’ of compound interest to life, but don’t shy away from demonstrating just how awful things could be if you don’t do anything.
With a nod to Nike, as sister site www.diyinvestor.net says – Do it Yourself, Do it With me, For it For me – just don’t do nothing! Robo advisors have a vital role in Doing it For those that do not want to get to grips with individual investments but want to build a diversified investment portfolio, whilst keeping costs low.
Robo advice may not yet be fully in the public lexicon but given the number of companies involved and the level of investment, it’s not going away any time soon.
Although initially having tech-savvy millennials in their cross-hairs, robo advisors have enjoyed success in attracting older and relatively more sophisticated investors anxious to keep their costs low.
Robo advice has challenged the traditional investment landscape and, many would argue, changed it for the better as advisors and investment managers have had to demonstrate their value and justify their fess.
Having initially felt threatened, the institutions, banks and advisors have all found a way to include robo advice in their suite of products.
As emphasis changes from the underlying technology to the needs and aspirations of its customers, robo advice 2.0 will deliver a more personal and immersive proposition that encompasses many aspects of a person’s financial journey; if anything it will be less, well, ‘robotic’!
Where it will become really interesting will be when robo advisors find a way to educate and engage an entirely new audience of savers and investors and help them on the path to financial emancipation or FIRE as they would have it in the States – Financial Independence, Retire Early.