Lester Petch, CEO of non-advised investment platform FinchTech, looks at the impact of robo-platforms.

Robo-platforms have already had a dramatic effect on the financial advice industry, and they’re just getting started. By 2022, their global user base is expected to reach 121.7m, and assets under management are expected to reach US $1.4 trillion – demonstrating an annual growth rate of 37.9%. June 2017’s Financial Advice Market Review Baseline Report suggests that that approximately 100 robo platforms have either already launched or are in active development.

It could be easy to assume that the rapid rise of these platforms is also the beginning of the end for IFAs. But will they really change the financial advice game – or simply unbalance it in favour of cheaper, efficient bigger players? And most importantly: as we move towards robo 3.0, will IFAs still have a part to play?


Here, now, and the not-too-distant future

The robo revolution is already well underway. Early entrants into the market such as Nutmeg took a generalist focus to be all things to all people who need financial advice. To that end, it appears the business spent some £10m on promotional and staff costs – simply getting known was, and remains, the single most important commercial priority for robo providers.

But Nutmeg’s approach was indicative of robo’s first wave. Robo 2.0. is characterised by specialisation – platforms trying to find their niche. It would appear Moneyfarm, for example, are actively targeting small savers, and spending serious money to get their attention. A £6.3m operating loss in the year to December 2016, we believe had £2m taken up by advertising and marketing spend. Cost per acquisition relative to lifetime value remains high, but these firms predicate their existence on the fact that the balance will shift decisively in their favour over time. They are probably right.

Given the level of competition and the absence of pre-existing distribution channels, this means that many robos are potentially built on somewhat unstable foundations and marketing spend is the only way out. Given they also tend to have potentially different notions about risk suitability and rely on algorithms never tested against serious financial instability, certainly doesn’t help.


In the end, it may not matter all that much because whether these platforms take off on their own or not, bigger and niche players are already taking an interest. Germany’s Quirin Privatbank and Sutor Bank provide their own robo-advisory services, and Deutsche Bankhas partnered with Fincite to supply a white-labelled robo-advisory solution. Traditional financial institutions will certainly bear partial responsibility for the future legitimacy and popularity of these services.

The operative word there is ‘partial’. Because while robo is a technological phenomenon, advice is a human one – and a hybrid of the two will ultimately drive robo 3.0 – and it’s already happening.

The future of robo

Big tech companies have long been obsessed with breaking into financial services. So far, their records have been somewhat mixed, however, in 2018 and beyond, due to reformed banking regulation, they may well crack financial advice. In some respects, the future of the advice industry is going to be determined by how quickly and decisively they enter the space.


However, away from the big data giants, robo 3.0 is looking like a complete step change from the initial algorithmic advice model to a hybrid model where robos hire human advisors to deal with customers who aren’t entirely satisfied with automated services. The likes of Scalable Capital, Wealthify, Nutmeg and most recentlyWealthsimple have all begun hiring human advisors to supplement their online offerings. We are going from ‘robo’ to ‘bionic’.

This was never the original mission statement for the robo market. You could surmise that they have failed and are having to extend their offering. The initial perceived target market was small to medium sized investors (millennials) whom had just begun to build a nest egg and needed to put it into the market but were not yet considered to be in need of advice or structuring services, which are usually the preserve of the IFA. The fact that the largest players in the robo space are now hiring IFAs to supply a service to a target market they never sought to engage with originally, speaks volumes and moulds the shape robo 3.0 will take.

The future of IFAs

Whatever happens, IFAs can’t afford to sit idle. On the one hand, Open Banking and PSD2 may give tech companies an opening – one that may even lead to them monopolising the industry, whilst on the other, the biggest robos are out there hiring financial advisors to offer traditional IFA services to potentially every tranche of saver / investor at a much lower price than traditional incumbents. This suggests IFAs have a choice to make: either compete or be swept away by robo 3.0.


Money is not always the answer and IFAs have a distinct advantage.  New robo offerings have no real performance history – especially when it comes to possible ‘black swan’ events. An IFA’s experience coupled with the right digital investment management solution forms a powerful weapon. Robos can often provide heavy passive investment solutions with varying degrees of active management. Financial advisors need to counter this by aligning themselves with partners who boast decades of active investment management with proven performance and a technology platform.

There is a very real chance within a decade that IFAs will become “bit part” players if they refuse to adapt to robo 3.0. Digital natives will always be the best at aggregating data, and robos will push the cost aspect as hard as possible, with MiFID II ensuring fee transparency remains high on the agenda. If, however, IFAs can provide a cost equivalent service – one that embraces the automated aspects of robo-platforms – while heavily emphasising experience and active investment management and access to advice where needed, investors will surely be better off and IFAs will live to not only to fight another day but expand their businesses. Robos are adding human advisors to complete their circle – why don’t advisors add platform technology and meet them head on?

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