Robo Performance Anxiety – Some Thoughts On Accessing The Right Robo Advice

There are some critical core advantages that robo advice can generically deliver. An enormous swathe of the population who have a need for their nest eggs to be expertly risk managed for capital growth or to provide income, effectively have very few affordable options based on the traditional advice model.

Keenly and clearly priced robo advice can offer an intuitively structured alternative that marries the ever expanding desire many of us have to be able to manage even the more sophisticated areas of our life online. The usage of digital solutions to obtain mortgages and loans for example is now very much mainstream. It is a natural extension to include investments into this model to provide price and quality comparison. 

However robo advice is not without its own possible shortcomings which need to be analysed when selecting a provider to ensure they are mitigated. The most crucial consideration that investors must become entirely comfortable with is to confirm that the actual portfolios available have the requisite real world track record to allow as greater level of confidence as possible that their future performance will fit the bill. It’s crucial to determine that the specific portfolios that can be selected have demonstrated the ability to handle turbulent market conditions in the short, medium and long term through exemplary risk management. However, this task is not an easy one in context of the fact that many robo advisers have a comparatively short performance history because many were founded only recently.

Take care not to rely overly purely on impressive curriculm vitaes of the asset managers involved or the quants who have built the investment models if the actual available portfolios are still relatively unproven. Whilst strong performance and pedigree generated elsewhere is a plus, there are numerous examples of portfolio managers who have managed to produce impressive results in a different context, who have not necessarily been able to translate this success to their next investment mandate.

The greatest peace of mind on robo adviser selection is to be achieved by identifying alternatives that have have a multi-year real world track record which, if at all possible, incudes plotting a course successfully through the events of 2008 within the numbers. Apply a healthy dollop of skepticism to performance numbers that are a result of simulations applied to a historical period in time – i.e. estimations on how a portfolio might have performed had it been in operation.

If the robo advisor’s portfolios have been white labelled by an IFA firm, it is essential to drill into the underlying robo firm to ascertain the expertise and track record of the asset manager behind the scenes.

Many IFAs Regardrobo-advice As A Competing Challenge

Many IFAs Regardrobo-advice As A Competing Challenge. But How Can That Be Turned On It’s Head?

It is an undeniable reality that robo-advice will become more and more widely available and used by a bigger and bigger percentage of the retail investor world. It is therefore of critical importance that IFAs look to work with this emerging trend rather that fighting the inevitable.

How can this paradigm shift be leveraged by IFAs as an opportunity to diversify their revenue stream whilst at the same time improving their service that is offered to clients?

For advisers, the addition of a robo-advice service working in tandem with their existing more traditional business model can deliver a number of synergies.

Robo-advice can act as a scalable channel to access potential clients that will require ‘in-the-flesh’ IFA services further down the line when looking at inheritance, buying a house and planning for retirement as just 3 examples. Banks already use this model but an IFA robo-offering will allow advisers to compete.

The ‘advice gap’ and the risk of ‘orphaned’ clients is as big a headache for IFAs as it is for the investors themselves but a robo-advice solution provides an efficient method to address the issue. It is no surprise that regulators across the world are very much behind the sensible use of robo-advice services to solve this specific problem.

Robo-advice is not always limited to those with a smaller investment portfolio. There are many high net worth investors whose 1^st priority is to ensure that annual fees are minimized in their efforts to maximize their portfolio performance. An adviser providing a robo element to their service can position this as a differentiating USP giving clients or potential clients a wider choice than competitors.

Many IFAs are likely to be daunted by the unknown levels of investment and resource required to add a robo-advice service to their existing proposition. However, there are turnkey solutions now available that provide the IT and the access to proven fund management solutions that the IFA can white-label quickly and at low to no incremental marginal cost. I will be examining some of the options in blogs to come.

Robo-advice is nowhere near a point where it can justifiably claim to be able to replace the role of an IFA. And even at some point in the future, if this were a technical possibility across the complexities of pensions and tax planning etc, there is no technology that could ever replace the requirement for personal expertise and the human touch. However now is the time where IFAs who add an intelligently selected robo-advice offering to the services, may be able to steal a march on their competition and turn a regulatory and admin nightmare into a significant revenue stream.

Robo-Advice – The Rise Of The Machines

Intro

This blog will cover the impact and opportunity of Robo-advice on financial advisers and the public.

What Does Robo-advice Mean?

‘Robo advice’ is big news currently as a relatively new concept. Good Robo-advice provides cutting edge technology that enables investors to benefit from the real world expertise of wealth managers. The service delivers portfolios founded on top quality asset allocation designed to meet the investment objectives of the investor at a cost effective pricepoint.

An individual responds to a short list of simple questions to assess their investment requirements which then drives the construction of an institutional quality investment portfolio suggestion that the investor can accept or decline. This process can take as little as a quarter of an hour.

Why Is Robo-advice Required?

The vast majority of personal investors handle all or part of their investments themselves. This ‘Do It Yourself’ method requires a lot of time and can be very risky even for those with investment experience.

There are also vast swathes of people who would like to have an investment acccount managed by an expert but for whom the use of an IFA is too expensive. These people end up with cash in the bank which does not deliver growth objectives over time. Robo-advice gives these disintermediated investors the opportunity to own a top quality investment portfolio which they otherwise would not have had. The FCA are vocal advocates of Robo-advice for this very reason.

What Next From This Blog?

Ongoing blog posts will cover the history of Robo-advice, how to choose a Robo-adviser plus more detail on how Robo-advice can revolutionise the personal investment landscape for investors and financial advisers.