- On July 9, 2017
If you’re considering financial advice and you’ve started researching your options it’s likely you’ll have stumbled across the term ‘robo-adviser’ on your online travels.
It’s very much a buzzword in the financial services sector at the moment but what exactly does it mean?
As much as having R2D2 on hand to advise clients at our Wokingham office would make a great marketing tool, the reality is rather less exciting.
A robo-adviser or ‘robo-advice’ is a digital platform which offers automated financial planning services. The advice is created using a computer algorithm and there is no – or very little – human interaction during the entire process.
The format, which aims to offer low-cost, streamlined advice, has seen a surge in popularity in the United States and is growing in the UK.
It’s aimed squarely at people who can’t afford traditional advice or feel their needs don’t justify the expense of a traditional adviser as the cost of robo-advice can be significantly lower than an ‘analogue’ adviser – or human being to you and I.
Robo-advisers are also accessible 24/7 as opposed to a traditional adviser who’s unlikely to come out to your house in their pyjamas at 3am when you decide you want to use your remaining ISA allowance before the deadline passes!
Robo-advisers also enable people with relatively small pots of cash to start investing, as opposed to the requirement of many advisers that clients have a minimum pot size, often starting at £50,000. Some robo-advisers have no minimum figure at all.
So, on the surface, robo-advisers seem to offer many advantages over the traditional adviser but dig a bit deeper and you’ll find a few limitations.
For example, I view the relationship I have with my clients as very much a personal one. The robo-adviser will not know if your Aunty Mavis is poorly or if you’ve had health problems recently or perhaps that your parents didn’t live beyond their early 70s – all issues that can significantly affect the advice given.
A robo-adviser pays for itself by generating money based on what you have invested in its products. While it’s disingenuous to say we don’t do the same, the advice I sometimes give to clients is that they can make their investments on their own without buying a product through us.
I’m a firm believer that there’s a place for all forms of advice and there’s no doubt that robo-advice will grow and if convenience is the be all and end all of your needs then this is the way to go.
But from my experience people like to look their adviser in the eyes. After all, you’re trusting this person with your financial future.
Is the underlying software model which a robo-adviser is based on robust enough to deliver a good outcome for you?
Does a robo-adviser really understand you and what makes you tick? Does it know what’s going on in your life or truly understand how your circumstances will fluctuate over the years?
Robo-advice is very much limited to a set of predetermined models which is fine if your needs are very simple which is often the case when you’re younger.
However, as people get older their financial circumstances can become more complicated and involve complex tax considerations that are beyond the scope of a robo-adviser.
At present, in most circumstances, face-to-face advice is far superior to robo-advice, particularly for those with little knowledge about investing, those with complex financial issues or for technophobes. It’ll be interesting to see how the technology develops and if one day the balance shifts.
But to return to my point – my relationship with my clients is a personal one and the advice I give is tailored to you individually, based on your unique set of circumstances.
I work together with my clients to adapt their investment needs to their circumstances over the course of our relationship.
I might not come to your house at 3am in my pyjamas but I’m always at the end of the phone (or email) to give you peace of mind that your investments are in safe hands.
For a free consultation about your financial needs call 0118 974 0159 or email email@example.com.