Wealthsimple is a recent example. With its eye on the pensions market, it announced in September that it plans to recruit financial advisers to enhance its digital pension product. It’s not the only one: Moneyfarm, Nutmeg, Wealthify and Scalable Capital are all hiring human advisers or considering it.
The FCA’s recent review into ‘automated investment services’ was an initial boost for IFAs, stating that robos were lacking in core areas such as service disclosure and suitability. The danger, however, is that some IFAs may now have become complacent, shrugging off the threat of robos as nothing to worry about.
This couldn’t be further from the truth. Instead of retreating with their tails between their legs, the robos have taken the criticism on board and are adjusting and adapting their products. The birth of ‘hybrid-robo’ means that digital platforms can now provide high-quality human advice to supplement low-cost robo-advice.
And worse still, robos are selling advice as a loss leader, sometimes for as little as £200 a session, simply to secure the assets – AUM obviously having a big impact on the future sale price of a platform. Wealthsimple, for example, launched its pension in October, and claims to provide unlimited access to investment advice from a human adviser, with no additional cost to the client.
Financial advisers and others in the industry are sleepwalking into trouble if they don’t wake up and prepare for the hybrid-robo revolution.
The response strategy for IFAs?
The true IFA advantage is that humans know their customers better than any robo-platform, and advisers have existing relationships and dormant back books (clients lost to the Retail Distribution Review for example).
If the robos are bolting on humans, then IFAs need to bolt on the right white label digital investment tech that enables them to service a demographic with less to invest as non-advised – bear in mind robos like Wealthsimple are banking on advisers not doing this.
Toby Triebel, European chief executive of Wealthsimple, only recently said in an interview, when discussing how easy it’d been to hire advisers to supplement their digital offering: "They [advisers] love what they do but they would love to be able to advise someone who has only got £5,000 to invest.” Robos like Wealthsimple know they’re backing advisers into a corner.
But don’t forget that it is proving expensive for robos to build their client bases and introducing humans into the mix will involve a bedding in period. Advisers need to use this window of opportunity to re-engage clients lost to RDR and target HENRYs (High Earners, Not Rich Yet) with simple cost-effective digital solutions...
If IFAs want to survive the new wave of hybrid robos, they need to supplement their traditional services and reach out to customers with less to invest who don’t want to entrust their money to an algorithm with limited performance history and suitability advice, before it’s too late.
Lester Petch, CEO, FinchTech