Robo-advice is fast becoming the fiercest battleground in financial services. While a slew of start-ups have spearheaded attempts to woo disenfranchised investors with low-cost advice solutions, some of the big high street banks now appear poised to deploy significant resources in an attempt to build market share.
This seems like a logical move, both now and in the long term. According to Legg Mason’s 2016 Global Investment Study, the vast majority (85%) of wealthy UK millennials said they were ‘comfortable’ with robo-advice, while 80% ‘trusted’ it.
To put that in perspective, millennials said they trusted robo-advice almost as much as their financial adviser. For a relatively new form of advice channel, particularly in the UK, that is remarkable.
Why are younger investors so willing to embrace robo-advice? The obvious assumption is that millennials are, on the whole, accustomed to living life online – indeed, some may have no real memory of a pre-internet world – so feel at ease with a channel that might involve minimal or no human interaction.
After all, many will already manage their basic personal finances online using banking apps and comparison sites, among other web-based services. Why have qualms about automated advice?
If that generational argument holds true, it would imply that older investors – those liable to spend less time online – would lean towards traditional forms of advice over their robo equivalents.
On the whole, this appears to be the case: the survey found that 37% of investors aged 40-75 trust robo-advice, compared to 69% who trust their financial adviser. This finding is interesting for two reasons.
First, in a market as highly intermediated as the UK’s, you might expect more investors to trust their adviser (although notably they still trust their adviser more than any other form of advice).
Second, while older investors are generally less open to robo-advice, it is striking that more than a third still trust it. If that is the case now, how many more investors in this demographic – bearing in mind the number of big brands set to enter the market – might come to feel the same way in future?
Like any other service or product, robo-advice will never suit or appeal to everyone. Traditional financial advice will always be highly valued, particularly by investors at the upper end of the wealth spectrum with substantial investable assets and highly complex needs.
But disruptive change appears inevitable, particularly with the FCA expressing enthusiasm for expediting the adoption of robo-advice in the UK, and the industry needs to determine what the impact is likely to be. Passing fads are nothing new in this industry, but robo-advice is clearly not one of them.
Adam Gent is head of UK Sales at Legg Mason