Everybody is either excited or scared by recent news stories about AI. Is your job at risk? A lot of people seem to think that humans giving financial advice is a role that is ripe to be not only further disrupted but extinguished entirely, by the so-called robo-adviser.
What exactly is robo-advice? A robo-adviser is a type of financial adviser that uses algorithms to provide automated investment advice and manage portfolios. Online platforms such as Moneyfarm and Nutmeg use complex mathematical models and historical data to analyse market trends and make investment recommendations based on the client's risk tolerance and investment goals.
There’s a new generation of investors - younger clients and those with smaller sums to invest - seeking a predominantly digital approach to help them with core investment and financial planning. These groups aren’t necessarily willing or able to tap into traditional financial advice and the robo version plugs that gap.
A robo-adviser invests your money in various funds and charges fees based on the value of your assets. The fees can vary widely, but across a portfolio they typically range from 0.05% to 0.25%. There’s no adviser to pay so robo-advisers charge a fraction of the management fee of traditional financial advisers. The increasing demand for low-cost investment advice triggered the development of a robo counterpart but tech-savvy millennial's also fuelled this development as they are partial to direct investment via a platform. I'm not sure how if you get "bad advice" or outcomes , what redress you have with this option but it is worth asking the question of the robot you engage ! Caveat emptor most likely!
Robo-advisers offer the convenience of a hands-off investment management strategy for a lower fee but if you need recommendations based on a holistic, personalised financial plan and view of your overall financial picture, a real life financial adviser fits the bill. With robo-advice there is limited flexibility and personalisation and of course much less human interaction so if you’re looking for some personalised guidance, the digital route may not be for you.
Meeting an adviser face to face can help to develop positive budgeting and wealth management habits and when markets are volatile, a human adviser can help clients to overcome potentially detrimental impulses, steering them to make sound financial decisions. Humans can also offer something a computer cannot - empathy. I don't see robo as a threat, more as a complimentary service or somewhere to get started. There is also financial coaching which can bridge the gap between full and complex advice, where you can still be a DIY investor but with a skilled human assisting on the sidelines when needed; at an hourly rate rather than a percentage charged each year makes this a viable and more affordable option.
So, the big question is, can robo-advice replace human advice? Robo-advice removes friction from the advice process and offers a streamlined solution for those looking to invest and spend less. Robots are clearly efficient and reliable when it comes to repetitive tasks with pre-determined parameters, inputs, and outputs. But when it comes to individual clients with different needs, attitudes, and requirements, the human element really comes into its own. There’s a high level of skill involved in financial planning and when we’re talking larger sums of money, guidance, and reassurance from those in the know, with real-life experience, can make all the difference.