Advisers should embrace robo advice to improve their offering

The digital revolution has changed the way clients get advice. Robo advisers are revolutionising how clients receive and access advice. In 2008, robo advisers, Betterment and Wealthfront, emerged as the pioneering platforms to target the digital-savvy customer. By mid-2010, robo advisers were enjoying a boom, and digital wealth managers were advised to embrace robo or risk losing their clients. 

Still, the robo revolution suffered a setback in 2019 when high acquisition costs and low fees on small investments affect profitability. It could take up to five years before a robo adviser could reap profits from a new customer. Altus suggests that robos should manage assets worth £20 billion to achieve profits. According to Money Marketing’s research last year, robo advisers were losing money, with the top robos losing more than £50 million for the year. That represents a 32% rise in losses year on year. 

The pandemic has revived the case for robo advisers as most traditional clients opted to adopt digital platforms. According to Capgemini’s 2021 World Wealth Report, the wealth-tech industry registered a record of 157 deals worth £2.6 billion in 2020. Even the larger firms are harnessing the power of technology. 

In April 2021, Vanguard launched financial advice services for UK clients with more than £50,000 already invested through its platform. May was an active month for digital advisory deals. Goldman Sachs announced that it would launch a robo advice platform within its digital bank, Marcus, next year for clients in the UK. 

M&G Wealth teamed with tech specialist Ignition to offer hybrid digital advice. During the month, Royal London completed its acquisition of Wealth Wizards. In June, JPMorgan Chase acquired digital wealth manager, Nutmeg. Most recently, in August, Abrdn signed a deal to buy Exo Investing, an AI-powered wealth manager. 

Does this mean that robo advisers threaten traditional advisory services?

Many industry players don’t believe that, at least in the short term, the industry should feel threatened. One reason, according to Ruth Handcock from Octopus Investments, is that traditional advisory service clients have more complex investment needs. The clients are more affluent than digital device firms’ clients. 

Still, robo advice could bring new clients at a more reasonable rate. Clients that access traditional advisory services should have at least £100,000. So, robo advice allows clients with assets much lower than this minimum to benefit from financial advice. 

Traditional advisory firms could also benefit from the time-saving benefit robo advisers offer. According to Simon Binney from Wealth Wizards, technology can handle the number-crunching instead of wasting the adviser’s time and incurring costs in the process. Jamie Jenkins from Royal London adds that this maintains human interaction but scales the business and expands the clients’ base. 

According to Binney, more advisers are embracing the digital revolution. That’s because the number of advisers isn’t enough to service all clients. Plus, clients’ savings aren’t supporting their lifetime needs. That’s why robo advisers can help bridge the gap and allow more clients access to advice. According to Altus, digital advice technology would improve advisers’ skills instead of replacing them.

So, advisers should not feel threatened by robo advisers. Instead, they should plan to include digital offerings as part of their advisory services.