Robo advice was touted as the ‘the next big thing’ but so far, as Investec found out this week, it’s proved to be something of an expensive damp squib.
Investec poured bucket loads of cash into its Click & Invest operation about two years ago, finally pulling the plug this week when losses over the past two years topped £25m plus £6m in software write-off costs.
This is a costly set-back not just for Investec but the whole robo-advice sector but is it the end for robo advice? I suspect not but the mistakes will need to be evaluated and the idea of a pure robo advice operation may be reaching a dead end.
The problem is, and this is one of the big issues with any ‘next big thing’, consumers just aren’t buying it.
The consumer is now king and if they want a service or a product, generally speaking, they will get it. Those who can afford it like Financial Planning which is why it is growing exponentially and companies are tripping over themselves to buy good Financial Planning firms. It’s a mature and profitable sector.
Robo advice has been talked about for at least 10 years and has always been touted as the cheaper DIY alternative to relatively expensive financial advice. A service the Millenials would flock to. Except they haven’t.
There are now many robo services and most of them aren’t making any money. Nutmeg, perhaps one of the best known, has struggled to make a profit and recently came up with the idea of offering a low cost personal financial advice to clients.
So why aren’t consumers flocking to robo firms? It’s hard to say for sure but factors could include lack of understanding of what they offer, fear of making investment mistakes and perhaps too little understanding of the benefits they offer.
Millenials, if they are the target market, are also hard-pressed too financially in many cases. They may just not have the money - it could be as simple as that.
So is Investec’s disastrous foray into this area the end for major investment? Probably not. Investec itself has said that it will continue to look for digital opportunities.
It’s also true to say that several Financial Planning firms are looking at digital opportunities and some are rolling out more modest initiatives in this area. I believe this will be where the real innovation will be if someone can find a successful model.
The future is likely to be a more blended approach - robo for those who just want to get started but advice when it’s needed. A pure robo model is, however, clearly not what savers are demanding at present. Back to the drawing board.
Kevin O’Donnell is editor of Financial Planning Today and a financial journalist with over 30 years of experience.