A robo-adviser is a wealth management service that provides wealth portfolio management advice, without the use of human financial planner, instead using automated, algorithm-based systems to provide an online service. Robo-advice has been around for a while now and is building momentum, with around £1bn invested in UK providers, and nearly $50bn in the less regulated US. Robo-advice platforms are certainly generating higher profiles in the adviser and consumer media and this week saw the launch of the first robo-advice comparison site Wealth Dunk, which surely is a sign of market maturity.
Nutmeg, who perhaps surprisingly are now 5 years old, recently hit 30,000 customers with £700m in assets under administration (aum). Nutmeg believe there is a potential UK market of 10 million customers to target. Scalable Capital which launched in July 2016 and operates in Germany and UK had around $200m aum in March is are currently adding around €1m per day.
Robo-advice aims to fill the gap in the market for those that want to invest and either aren’t confident enough to fully self-serve and select their own investment strategies or don’t want to pay adviser fees. The level of advice these companies offer varies but most typically use an algorithm to categorise attitude to risk and recommend a simple investment strategy based on the responses to 10 or 15 questions. The more advanced firms will also manage the investment protecting the client against market volatility (which given the past 12 months might give some peace of mind)!
New firms have a great advantage...
The robo element is also present in the back office where these new firms can typically get an account up and running instantly (with automated money laundering and compliance checks) making it a painless application process compared to some of the more established D2C companies.
The Wealth Dunk site provides a useful comparison of the fees and features of some of the main players in the UK, and also links through to customer reviews, which are in the main very positive. What it doesn’t do yet is evaluate how well the investments perform and as these firms have not been operating long, so it is difficult to assess accurately against benchmarks.
Wealthify have committed to publishing their fund performance which they believe beat traditional wealth management benchmarks, and the good people at Boring Money have also started to analyse performance so expect to see more over the next year. Even better would be an analysis of how good or sophisticated the advice is.
Advances in machine learning and AI are also likely to improve and extend the customer experience - pro-actively warning the customer about market changes or investment decisions. If, as rumoured, 2017 sees some of the more established US firms launch here, then this could really be the year robo-advice hits the mainstream.