One of the defining themes in recent times is the rise of populism in Western Societies, characterised by events such as Brexit and the election of Donald Trump as the US President; in that spirit, robo-advice is seeking to democratise investment management.
Initially commentators struggled to understand the cause but have since reached consensus that large swathes of populations felt excluded from the wealth created by globalisation.
Leading politicians such as Theresa May have highlighted (in her recent address to the WEF at Davos) how politicians in the West should not forget those within society where ‘life remains a struggle as they get by, but don’t necessarily get on’. Acknowledging this exclusion is the first step to enabling societies to become more inclusive.
Keeping this in mind, exclusion can be identified and acknowledged in many verticals of the service industry. In our industry this trait can be seen in traditional approaches to wealth management.
ultimately provide a level playing field for inclusive wealth creation
Skilled investment advisers command substantial fees to provide investors with effective investment management advice. Historically these fees would form part of the Annual Management Charge (AMC) of the investment fund bought by investors.
However, in the UK this mechanism was removed by the FCA as part of the Retail Distribution Review (RDR) resulting in investors needing to pay upfront for investment advice.
Where investors had only small amounts of money to invest, this could often exclude them from obtaining the necessary investment advice and ultimately from participating in the investment process.
Despite demand for investment advice remaining high across all socio-economic sectors, a two-tier system began to proliferate, where the rich have access to expensive private wealth management services and therefore have the ability to get richer, while the poor are excluded from wealth management services altogether and remain as they were.
Apart from the standard functionality, there are two key elements that set robo-advice apart from historical wealth management offerings.
Firstly, investors can access the service at very low minimum investment amounts, and secondly, investments carry a very low management fee (charged to run the portfolio).
Combine these elements with very sophisticated risk profiling and investment goal determination, intuitive customer UX, and robo-advisers provide a channel that offers investment advice to everyone, regardless of how much money they have and their level of financial knowledge.
These platforms go some way to democratising participation in capital markets and can ultimately provide a level playing field for inclusive wealth creation.
By Ben Stokes, Managing Director, Actual Intelligence
Originally presented at Robo-investing Europe 2017