By Alan Walsh – Propositions, Bravura Solutions
Another day, another robo-advice headline. It’s a human truth: we love to dissect a new trend and debate its merits. Internet communication amplifies this and we risk developing a distorted view of priorities; in particular, how to fill the growing mass-market advice gap.
Here’s some context: type in robo-advice and Google returns over 900K entries. That’s nearly 300K more than the Sunset Clause, 400K more than MiFID II and over 500K more than the Financial Market Advice Review (FAMR).
The debate stems from ambiguity about what constitutes robo-advice and sensitivities around the word ‘advice.’
Digital adoption has opened up new ways to reach investors. But despite the hype, US Robo disrupters have been overtaken in terms of AUA by traditional providers with solutions that sit somewhere between Robo and traditional advice.
And what about the contentious advice label? Much of what Robo offers doesn’t fit cleanly into established FCA definitions. Where exactly do automated advice, guided architecture, direct discretionary, algorithmic and cyborg advice fit?
But does it matter? We’re applying an industry lens and looking from a false perspective. Let’s think instead about the investor. What do they want when they look for advice?
For most people with small amounts to invest, simple guidance on which ISA investments to choose probably does the job.
Alan Walsh, Bravura
Wealthier investors with more complex tax planning needs are more likely to pay for advice. Or to look for some human reassurance during an automated process. But this isn’t the segment with the advice problem.
We must consider how best to deliver that simple guidance to the mass market. People want help to select investments. It’s received wisdom that too much choice leaves people overwhelmed and disengaged.
Guided architecture has been around for many years and addresses this issue. The core proposition is to understand attitude to risk, capacity for loss and to direct investors to a suitable asset mix. That could be a portfolio or single multi asset fund. Some propositions tag on updates to the recommendations and rebalance portfolios.
Technology means that at the touch of a button an investor can calculate tax loss harvesting (US), do smart rebalancing, efficient portfolio construction and tax efficient redemptions. This, plus a holistic view of existing assets, could be a compelling proposition for wealthier investors. But it is more likely to be a tool to complement traditional advice as the amounts involved generally trigger a need for some human interaction.
But as a solution for the mass market, is it overkill? Just because technology makes something possible, it doesn’t mean it’s the answer. Our sector has a previous track record for developing overly complex products and solutions that leave people confused.
For the mass market, let’s focus on simple guided architecture. Yes, digital developments help us reach more consumers in a user friendly way. But we don’t need unnecessary bells and whistles from Silicon Valley.
Let’s not debate a label; let’s meet the immediate needs of the mass market and embrace technology as a way to engage investors and look to expand the proposition as they are engaged.
Technology will have failed those investors if complexity leads to inertia. The tail should not be wagging the dog.