Many people feel that organising their finances and asking for help is ‘not for them’. Perhaps they see it as an unnecessary expense. Perhaps it’s just too complicated. And even if they do want help, it’s not always clear how to get it. In this context, it’s good to reflect on the rise of so-called ‘robo advice’ platforms.
Robo advice platforms have worked hard to create customer-friendly brands over the last five to ten years. Their rapid growth is a good example of how technology can help to engage a new generation of potential investors.
But is it clear what they actually offer users? And is what they offer helpful? Last year, the Financial Conduct Authority (FCA) published their findings on the subject. The results are quite jarring, and shine a light on the potential drawbacks of the fast-growing industry.
Not so personal
When it comes to advice, ‘suitability’ is everything. Financial advisers have to tailor their advice to each client’s circumstances, goals and risk appetite. But the FCA found that many new platforms aren’t necessarily doing this. In some cases they’re not even collecting all the information they’d need to be able to.
It’s not hard to see why. They sell themselves on the back of a seamless online experience – one where success is measured by growth rates and conversion metrics. And their venture capital backers expect nothing less.
Now you could argue that this creates an inherent conflict. Because where sign-up and suitability become one and same, the latter’s probably not up to scratch. Slick sign-up journeys generally result in users being put into predefined risk brackets. This only caters for broad sets of people – not individual users.
If your answers are similar to someone else’s, you’re likely to end up in the same bracket. And you’ll almost certainly be invested alongside them in the same products. But it’s highly unlikely that you’ll have the same needs or aspirations.
In my opinion, it’s better to take the time to go through your finances as a whole with a qualified professional. By looking through your monthly outgoings and any debts, and exploring your objectives, you can build a long-term plan that’s personal to you.
Dealing with change
Reacting to change is fundamental to financial planning. You might switch jobs, have your first child or finally get on the property ladder. Life events impact our finances and how secure we feel. And even if you’re reasonably sure of where you’ll be in five years, it’s a safe bet that markets and the global economic outlook won’t have anything like the same degree of certainty.
That’s why it’s best practice to check the facts and make any necessary tweaks to a financial plan at least annually. Even if only to make sure everything is still on track.
But here the FCA reported that most robo advice firms “were unable to show that they had adequate and up to date information about their clients when providing an ongoing service.” Again, it’s easy to see why. If the business views the collection of suitability data only as an onboarding task, why would they go back and bother users with it again later on?
Value for money
This brings us nicely onto what consumers are actually paying platforms for. Their fees might seem competitive at first glance, but the FCA remarked that some firms compared their costs with other services “in a potentially misleading way.”
In other words, you need to compare apples with apples. You shouldn’t compare an investment offering, which only asks some basic upfront questions, with a thought-through plan that takes into account someone’s total finances.
Personally I think it’s better to pay for someone to actually assess your full circumstances, not just introduce you to some funds that you might have been able to find yourself.
There’s no doubt that technology is hugely important in improving efficiency and creating a seamless customer experience. At Octopus Wealth, the company I’m excited to have recently joined, we’re using it to do exactly that.
But based on my analysis, it seems sensible to conclude that there’s nothing quite like personalised, tailored advice from a real human. The robots aren’t taking over yet.
If you agree, maybe we can help!