Robo advisers recognise the need for human touch
Online investment platforms are launching over-the-phone and face-to-face services
Robo advisers promised to shake up the UK investment market by using algorithms to deliver low-cost automated services to the masses. However, British investors have found a bug in the system — when it comes to managing their money, they want to speak to human beings too.
The new breed of “robos” are morphing their business models to provide over-the-phone and face-to-face advisory services, recognising that more of a personal touch is needed to win over customers.
Scalable Capital, the European online robo-advice company backed by BlackRock, is launching over-the-phone and face-to-face consultations for a one-off fee of £200 from January after finding a number of clients wanted to talk to human advisers rather than answering its online questionnaire alone.
The company’s 15,000 customers can pick from a range of low-cost passive investment portfolios based on their risk tolerance. Founder Simon Miller said Scalable would help customers complete scheduled risk assessments with an adviser after some of them said it was “a big jump” to complete the automated process alone.
“It gives customers a level of comfort,” he said. “The launch of advice is for those people who want to speak to someone about the service or maybe about their existing investments or financial life. A lot of people may not have access to advice and the idea of a one-off transaction could be very appealing to them.”
The move is the first admission from the robo world that investors may not be comfortable with trusting their money to a website or app without an element of human interaction. This hybrid model is a move away from the original robo proposition as a cheap online alternative for people who could not afford to pay for face-to-face financial advice.
Nutmeg — the UK’s largest robo platform with £1bn assets under management — told the FT it was also working on a low-cost way to offer human financial advice after acknowledging many clients “want to speak to someone”.
The company said many customers wanted isolated, low-level advice but did not need lengthy face-to-face interviews or want to pay the fees that an independent financial adviser would charge for in-person advice.
Chief investment officer Shaun Port said Nutmeg’s customers frequently wanted “reassurance” and could benefit from low-cost one-off advice designed to apply to specific circumstances.
“Customers often want advice around a particular life stage or one element of investment,” he said. “We tend to think about financial advice as sitting down in an interview and reviewing everything about your life, including your mortgage, debts and investments. But customers do not necessarily want everything reviewed. There is far more appetite for more modular forms of advice.”
Mr Port said Nutmeg could use its volume of customer data to automate parts of the advice process and come up with a cheaper hybrid version, combining elements of online-only robo investing and more traditional methods.
“We understand our customers through data,” he said. “When you interact with our service, you are giving us data on your behaviour. It might sound spooky but whereas you might see a financial adviser once a year, we have data on your behaviour and can target our interactions with you based on that.”
The company is in the early stages of developing a product and expects to introduce new services in 2018 for its existing customers.
Robo advisers have made a name for themselves by disrupting the traditional, highly regulated model of personal investment advice. In September, the UK’s Financial Conduct Authority published new guidance on “streamlined advice” — an umbrella term for simplified, focused advice provided by automated robo advisers, as well as more traditional face-to-face or telephone methods.
This goes a step further towards bridging the so-called “advice gap” between low-cost online providers and the traditional service provided by independent financial advisers (IFAs) who typically charge £150 per hour, according to unbiased.co.uk, which many smaller investors regard as too expensive for their needs.
Despite impressive growth in customer numbers, robo advisers still command a relatively small share of the overall market.
Scalable Capital’s assets under management have grown fivefold in 10 months, having hit €500m (£442m) in November. Nutmeg doubled its customer numbers in under a year from 24,000 at the end of December 2016 to 49,000 last month. Over the same period, its assets under management have increased by 67 per cent to £1bn.
Yet according to consumer site Boring Money, robo advisers accounted for less than 1 per cent of the UK’s £192bn non-advised online investment market at the end of the third quarter of 2017.
The new breed of online managers have also struggled to generate a profit from their customers, who tend to have smaller average portfolio sizes than those using traditional financial advisers and wealth managers.
Investors with large portfolios tended to be less comfortable opting straight for a robo solution without any human interaction according to Mr Miller, who said that adapting the robo model could help target older, wealthier investors who were less comfortable using online-only platforms.
“We expect that it will translate into higher average investments,” he said. “Currently our average is around £40,000 and we could see that rise significantly as people who have more money tend to be a little older and will have had experience with [face-to-face] advisers in the past. This move to a fully automated service is a big step for them.”
Both Nutmeg and Scalable Capital said that their customers had always been able to speak to customer service teams either over the phone or via email.