Robo platforms are giving IFAs a scare. They came into the market with full force, promising tech driven, hands-free robo advice for anyone who wanted it. With major market participants spending millions on promotional and staff costs, as to be known was, and remains, the single most important commercial priority. Now robos are hiring human advisers to deal with clients, creating what is becoming known as a new ‘bionic’ model.
Robo platforms are adapting – and they’re moving fast. By 2022, their global user base is predicted to reach 121.7m and, according to Statista, assets under management are anticipated to reach $1.4trn – demonstrating an annual growth rate of 37.9%.
So, where do IFAs fit into this story, and can they keep up?
What defines robo 3.0
Nutmeg is a good example of an early entrant into the robo platform market. It took an ‘all things to all men’ approach, attempting to cater for the masses. By comparison, robo 2.0 has been characterised by such platforms trying to find their niche. Moneyfarm, is a good case study for this approach, as it is actively targeting small savers.
Ironically, it looks as if the addition of the human touch will define the robo 3.0 approach. A hybrid model of robos and human advisers has emerged, with established incumbents making hires. According to the Chief Executive of Scalable Capital Simon Miller: “There was demand from existing and prospective clients to receive advice on whether they should transfer their existing investments to us, as well as from clients who just wanted to discuss their current financial situation.”
There are reports that others are considering the bionic option too - Shaun Port, Chief Investment Officer of Nutmeg said that they are "currently exploring a model where we could combine the best elements of digital wealth management and more traditional financial advice”.
Meanwhile on the banking side, there are traditional institutions investing in robo propositions. Germany’s Quirin, Privatbank and Sutor Bank provide their own robo-advice services, and Deutsche Bank has partnered with Fincite to supply a white-labelled robo-advice solution.
IFAs need to move into the digital space
The fact that the robos are having to extend their offering by hiring humans certainly speaks volumes. It was never (openly) part of their original business plan and seems to contradict their low touch point, low cost business model – indeed Michelle Pearce, Chief Investment Officer at Wealthify stated in a recent interview: “We’ve not seen anyone in the UK effectively integrate holistic financial advice into their robo in a solely digital way. This means human advisers need to be relied on which is expensive and defies the scalable and cost-effective principle that robos live by."
The concern for IFAs is that it’s unlikely robos will increase their fees to compensate for the human cost of interaction. Indeed, low fixed fees are openly mooted. It is already a hugely competitive marketplace where attracting new ‘direct’ customers is a significant challenge, one that the bigger robo players like Nutmeg and Moneyfarm are spending many millions of pounds on.
Media reports actually suggest robos are willing to offer advice as a loss-leader in order to attract more assets under management.
How then can IFAs possibly compete with a robo proposition offering human financial advice for a few hundred pounds?
Whether the new hybrid model is an act of desperation or simply another way to get ahead of competitors we can only surmise. One thing is for sure – it’s time IFAs as trusted, experienced holistic advisers, considered future-proofing their businesses. IFAs do not need to lie down and prostrate before the alter of the robo. If robos are adding human advisers too, then to complete the circle – why don’t advisers add digital technology and meet them head on?
Robos have thrown millions at customer acquisition and subsequent retention. However, one thing they cannot buy is a holistic IFA experience - this remains the most valuable weapon that IFAs have.
The robos have a distinct lack of performance history and the jury’s still out on robo suitability advice with different platforms drawing different conclusions on investor risk appetite. If IFAs can couple their experience with the right digital investment management solutions enabling access to active investment management, they have a way to fight back against the inevitable robo creep that accompanies the new bionic trend.
Robos might be moving fast with money in plentiful supply but there’s still time for IFAs to take a seat at the table. If they make the right moves now, they can turn robo 3.0 on its head – after all, they are the original innovators in the financial advice industry.