So what do you call a robo-adviser?

Do robo-advisers now pass the ‘so what?’ test?

In our work on online investment processes in the past few years, we have often found ourselves searching for a simple term to describe what we are building. Sooner or later somebody says something like ‘I hesitate to use the term…robo-adviser’. Why do we hesitate? Much as we would be concerned about be operated on by a medical droid or be flown on a plane on autopilot, most of us have reservations about a robot handling our net worth. Yet many financial services and fintech firms, ranging from innovative new entrants to seasoned veterans, are increasingly engaging with customers through online channels where algorithms replace human interaction.

What the bots do well

In the investment process, we believe robots are good at some things:

1. Processes that systemise the evaluation of attitude to risk and capacity to loss. Collecting information on customers this way is not unique to online journeys or robo-advisers. Advisers have used questionnaires, often in conjunction with cash flow projections to determine need to take risk, to navigate the three sides of the financial advice triangle have for many years.
2. Online, sometimes these processes help engage in customers who would otherwise not be keen to arrange meetings in person or by phone (convenience).
3. Robo-advisers use or adapt questionnaires which have been used in many thousands of face-to-face journeys. Good attitude to risk questionnaires act as a starting point. Combined with carefully crafted capacity for loss and needs evaluation this process can lead to better outcomes than an unstructured face-to-face process.
4. Identifying customers who should not be taking investment advice early in the process

What bots don't do so well

We also believe that robo-advisers are not replacing advice:

1. In our view, robo-advisers are predominantly addressing the ‘advice gap’: reaching new customers who, since RDR, are often uneconomical for financial advisers.
2. Online engagement suits busy people of all types and especially generations X and Y
3. The decision process is well structured and documented, thus reducing compliance breaches
4. In a very strong robo-advice proposition the customer who otherwise would receive no coaching will learn something over time
5. Robo-advisers or questionnaires can also save time – end-to-end questionnaires using our tools typically take around ten minutes to complete.

The conclusion we draw from this is that we need to get on with the important job of building the best investment propositions for our clients regardless of how much (or little) human intervention is involved. Robo-advisers are not really robots and many do not provide advice, at least not in the FCA’s definition. Despite this we have accepted the term Robo-adviser until we find something better. Whatever term or label they are given, we understand that each process will be different. Our job is to ensure that they use the best questionnaires.