What is Robo-advice and is it really going to change financial advice?

Changes are coming to financial advice in the form of robo-advice. So what is robo-advice, you may ask? Well as the name implies it is advice that would be delivered to customers automatically and most likely by a computer. So here is the definition according to Investopedia.

DEFINITION of ‘Robo-advisor (robo-adviser)’

A Robo-advisor is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners. Robo-advisors (or Robo-advisers) use the same software as traditional advisors, but usually only offer portfolio management and do not get involved in more personal aspects of wealth management, such as taxes and retirement or estate planning.

So the big question to ask is this.

“Can it really replace a human adviser?”

The truth is that in part it probably can, but only in a very limited way. And here is why. If you are just looking to buy a ‘financial product’ a series of questions and algorithms will almost certainly be able to tell what product you should buy. For example, a series of questions could guide to you deciding on how much life insurance cover you should have in place to cover your mortgage and protection your family. Robo-advice may also be able to tell you who is offering the most competitive terms available. But that is where it ends. There is no added delivery of what is most likely to be even more valuation advice. In the above example of arranging simple life insurance cover, it is unlikely that robo-advice will be able to advice you the most suitable way to put the life assurance into Trust and who should be the Trustees. It’s almost certainly not going to provide advice on how to set up the Trust in the most efficient way, from a taxation perspective.

You see, where face to face advice comes into its own, is in providing specific advice to suit an individual’s circumstances. I don’t believe that a computer will even be able deliver this type of advice. In our opinion, robo-advice will and can only ever deliver product selection and not advice.

So why has robo-advice been invented? there has been a constant decline in the numbers of advisers. In 1985 there were over 250,000 financial advisers in one form or another, from the ‘man from the Pru’, to bank advisers, to Independent Financial advisers. Today however, according to latest Financial Conduct Authority statistics there are now around 22,000 adviser remaining. Now clearly not everyone needs financial, however from my experience more and more people who need advice are struggling to find an adviser. As a consequence, some adviser firms are trying to deliver advice in an automated way in order to be able to serve more people.

Would i use Robo-advice myself?

Robo-advice in my opinion can lead consumers into making decisions that are not always going to be in their best interest. A strict series of questions can lead to advising the purchase of a certain financial product, but without looking at what we regard as the most important part of planning — GOALS and ASPIRATIONS, it is hard to see how a computer could successfully interpret this. Let me give you an example.

A?friend asked me if I could nominate a consultant for them as they were dissatisfied with their current adviser, who coincidentally only wanted to offer semi-automated advice remotely over the phone. The?friend initially wanted a local adviser to help manage her investment portfolio. However, after several meetings, it became more apparent to everyone that looking after investments was not the only motivation. The real motivation was to ensure that her assets transitioned smoothly to her children and that Inheritance Tax was mitigated as far as reasonably possible.

You see, sometimes people go to see an adviser because they either think that they have a certain problem or an issue that needs resolving, but its only having spent time with an adviser that other issues are identified that may be more important.

?get me correct, there is a place for Robo-advice and it will suit all people, but it is my belief that it is for everyone and there will always be a place for face-to-face advice. Great financial advisers have the ability to see the broader picture, Robo-advice is currently a series of algorithms that compete hard with Great financial advisers.