Royal Bank of Scotland will be the first of the big banks to launch automated online investment management when it launches its robo advice service on Monday 20th November, targeting more than 5m customers with a NatWest branded service.
The state-backed lender is expected to be just one of those revisiting mass market advice, a space that most banks exited following claims of mis-selling and the increased cost of doing business following the government’s 2012 Retail Distribution Review (RDR); RDR had the polar opposite effect to the universal access to financial advice it was designed to deliver and now the FCA is actively encouraging the development of robo advice as a way to plug the ‘advice gap’.
In a sector that has largely been dominated to date by well-funded and agile start-ups, RBS’ announcement comes as a number of other banks prepare to add robo advice to their existing product suite; by offering it to existing customers, the incumbents thereby avoid the punitive cost of client acquisition faced by the new kids on the block and can increase their revenue at a time when low interest rates are damaging their profit margins
Unlike some of the recent launches that have set the bar relatively high in terms of minimum investment, the NatWest service is designed to be a mass-market proposition, allowing people to invest from as little as £500.
the NatWest service is designed to be a mass-market proposition, allowing people to invest from as little as £500
Customers will be given an investment plan after completing an online questionnaire regarding their circumstances, goals and attitude to risk; the funds that comprise the investment plan are selected from the risk-graded portfolios NatWest offers via its execution-only services; the total cost of advice, investment and platform fees is 0.95%, targeting customers who lack the confidence to make individual investment decisions, but do not wish to pay for full-blown financial advice
Surveys have shown that up to one-in-five people cannot read a bank statement and that one in three cannot work out what the interest on their savings should be; RBS is the latest to join a movement that is committed to democratising investment and increase engagement with, and understanding of, financial services.
RBS is the latest to join a movement that is committed to democratising investment and increase engagement with, and understanding of, financial services
All of the large banks were hit to a greater or lesser degree by fines levied for delivering poor or inappropriate advice or mis-selling complicated investments such as structured products; the precise definition of what constitutes financial advice has been a thorny issue in the past, and whilst the FCA has worked hard to nail down a precise definition, a number of the platforms prefer to be ‘automated digital investment managers’ or variations thereof.
However, the NatWest service unequivocally provides advice, giving customers recourse in the event of any claim that they have been mis-sold.
Phil Northey, a managing director at NatWest, told the Financial Times that the FCA’s clarification of the definition of advice had helped with the launch of the service, saying ‘The retail distribution review certainly increased costs and reduced access to advice.’
RBS also owns the Queen’s bank, Coutts, and in a recent interview with Wealth Manager its head of wealth and investment management, Camilla Stowell, said the business was looking to offer robo advice and attract a younger clientele, committing to spend at least £20 million on technology upgrades:
‘We are working on simplified advice, so for want of a better word, robo advice. But we are thinking about that for NatWest, as well as whether or not it would be relevant for elements of Coutts’.
RBS’ launch could serve as a precursor for Coutts to offer a digital solution tailored to the private client market, and it is expected that a number of banks will be announcing their own robo advice propositions in the near future, with HSBC widely predicted to be the next to declare its intentions.