September 5, 2017

Robo can be much more than numbers in the profit column

Tom Ellis

Tom is a reporter for Professional Adviser, focusing on retirement, pensions, financial advice, planning and regulation (FCA).

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As a low-cost service, one of robo-advice’s greatest advantages is the portfolio sizes it can profitably serve.

With many financial advisers unsure about taking on a client portfolio of less than £100,000, let alone £50,000, robo-advice offers a great opportunity for client books to be developed.

On this topic, I’m often reminded of an anecdote.

Someone once told me how an advice firm used to buy a list of London law school graduates every summer. The advisers would ring up each newly-qualified professional and offer some small service to get them on their books and plant the seeds of a strong client relationship. They would then gently engage with them every year to keep up-to-date, and so on.

Using this simple technique they secured many potential high-earners for the future. 

Although this may seem old-fashioned, these phone calls kept the advice firm safe in the knowledge their client books would not become stale; they had a simple and effective way to prepare and plan for the future.

With robo-advice, this type of strategy can be employed by bolting the technology onto an advice proposition. Rather than thinking about robo-advice services as numbers in the profit column, it can be a new-age method to keep client books fresh, while also introducing up-to-date technology to the business.

Phoning law graduates was an effective plan of attack back in the day, and still might be, but a robo-advice service can do a better job while saving time, refreshing an advice proposition and servicing the potential high-wealth client all in one go.

And, speaking as one of the millennial generation myself, I can assure there is a demand for this type of low-cost service.

Lower-wealth investors want to be able to put savings away safely without chucking them into some nice-looking funds on an online investment platform. Although they are not the biggest sums compared to the usual advised client, I can guarantee they feel relatively big in our circumstances and we want some help managing the money.

Whether that’s through a pure, online ‘robot’ adviser or a robo-adviser with a human just a click away, there is demand.

And while I don’t want to talk too much about regulation and legislation in the context of robo-advice, or in any context for that matter, it’s hard not to.

Rule changes in particular have been a key driver in pushing the sector towards this technology.

The industry regulator’s revolutionary Retail Distribution Review got rid of commission for advisers and, since then, consumers with less than £50,000 to invest - also know as the ‘mass market’ - have had little to no access to advice.

The Financial Conduct Authority’s post-Retail Distribution Review paper, the Financial Advice Market Review, tried to address this. It concluded a robo-esque solution could well be the key to reaching and reinvigorating this market.

What’s more, the regulator has gone out of its way to help firms with robo-advice services.

Through its ‘Advice Unit’ it is helping firms develop low-cost technological services by offering regulatory feedback. While this may seem odd for a financial regulator, this is evidence it is actively supporting technological progress in this area.

Covering the regulation beat for my publication I see the regulator get a lot of stick, as one might expect, and sometimes I can sympathise with it after reading a 200 page MiFID II paper early on a Monday morning.

But this is one policy the regulator will hear few negatives about.

Plus, after all is said and done, it is essential the stubborn advisers, who have survived the revolutionary Retail Distribution Review, pension freedoms, and more regulatory changes than this financial journalist can count, continue their sheer belligerence in this sector and keep thriving.

Robo-advice is simply the next step in the financial advisers’ evolutionary path.


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