Platforum: The human face of robo-advice


There has been much debate about the role of robo-advisers and whether they will displace the traditional financial adviser, fill the advice gap or perhaps do both. Our view is that they will be used mostly by financial advisers rather than the mass market of investors. What is more, we envisage robo-advice helping to fill the advice gap by reducing fees. Let me back up a bit to provide the context for this view.

Brand and reach

In the US, where we have seen the strongest adoption of robo-advice, it is interesting to note that the numbers are still relatively small among the start-ups. When it comes to the leading US start-ups, first and second ranked Wealthfront (established in 2011) and Betterment (established in 2008) had $2bn (£1.29bn) and $1.4bn in assets as at February.

The more established and recognisable Schwab tells a different story. Having launched its version of robo-advice in Q1, the first six weeks saw the service obtain $1.5bn in assets. Results published this month show that assets grew to $3bn at the end of Q2, with 39,000 accounts opened. This just shows what a difference brand and reach can make to scale.

In our regular surveys with consumers and investors, we ask about the factors most important in selecting a platform. “A well known and trustworthy brand” consistently comes out on top, beating price by a wide margin. Schwab has the brand and reach to attract the masses but it also has something else: a human being to back it up.

Human support

Having the human support to back it up is another factor we believe is crucial for the success of robo-advice. We know most investors take a blended approach, both seeking advice and going self-directed. We believe we will see a similar pattern with robo-advice.

Most investors are happy to manage their investments themselves but will want to check in with a real person from time to time. Often, this involves wanting to make sure the plan makes sense with a real live person, as well as to get some support and guidance on the decision.

Working together

Back in the US, much of the take up of robo-advice has been among financial advisers themselves. These tools, slick as they are, can still seem intimidating to the average investor. As soon as you start discussing risk-rated portfolios or asset allocation it can all seem a bit too complicated.

Robo-advice offers a terrific opportunity for advisers to improve productivity and reduce fees. This, in turn, will help reduce the advice gap.

We will be debating the future of advice and the role of technology at the Platforum Annual Conference, produced in partnership with Aegon UK, on 1 October. In addition to debating the role of technology and digital engagement, we will hear from Aegon UK chief executive Adrian Grace about re-shaping consumer access to, and engagement with, retail investments. We will also debate vertical integration and the prospects for platforms, income solutions for drawdown and the future of regulatory reform.

We will cover outcomes of the debate but also hope to see some of you there.

Heather Hopkins is research director at Platforum.