In a world where your fridge will know you’re running short of milk and re-order some more online for you or where your garden sprinklers will start watering your lawn because they’ve detected a drop in moisture, we should hardly be surprised that automated technology has entered the financial arena.
Why the interest?
Robo-advice services are now an option being offered in the wealth management sphere. These are the new alternative to human financial planners and claim to make automated portfolio management accessible, affordable and convenient. Algorithm-driven investment software allows robo advisers to construct portfolios for clients or enable them to build their own. They usually only offer portfolio management advice not the more personal aspects of wealth management, such as taxes and retirement or estate planning. It is a no-frills, low-maintenance service.
But is it just a trend?
The proponents of the new robo advice technology will focus on the above features but there must surely be some disadvantages too? Could this just be the latest fad?
There is some doubt as to whether robo-advice, while it may be efficient, is truly safe and responsible yet. In time, people will become more comfortable with the idea, but not everyone feels they can trust an algorithm to tell them where to invest their life savings.
And this will be the crux of the matter. Many people would prefer to talk in-depth financial affairs over with a human being. They like the reassurance of being able to call a professional adviser so they can discuss the options. Also, in times of volatility, investors want to be able to pick up the phone and speak to an adviser to find out what is happening to the assets which will shape their future. Logging on to a website and using an online tool might not give quite the same peace of mind. Even if some do try robo-advice, they often still want an adviser to check the recommendations. In addition, if they require a range of services and advice types the role of the adviser remains key.
There are also some concerns about the possibility of mis-selling and claims within the industry that the ‘newcomer’ to the advice scene is being allowed to meet less rigorous standards in terms of due diligence. Questionnaires that are filled in electronically are not subject to the same checks for accuracy that traditionally would have been made. The Financial Conduct Authority has also expressed doubts about some of the risk-analysis tools.
The robo market is in its infancy and far from tested. Some are already proclaiming that it is dead before it has even properly begun. Whilst computers have benefited many areas of our lives, there are some aspects that may just not be ready for them yet. Long term personal financial goals feel like one of those aspects, though we will of course continue to leverage technology in the best way possible for our clients… but we’ve not quite turned into robots… yet.