With dozens of robo-advice platforms in development in the UK there is a lot of manoeuvring as platforms seek to carve out a niche and stake a claim based upon their perceived USPs.


Whilst undoubtedly tech savvy and receptive to the idea of automated investment advice and banking, millennials may be facing just too many financial pressures to be the panacea for the next generation wealth mangers, so much effort is being expended in searching out new markets.

Despite the temptation to throw a blanket over all of the offerings and tag them robo-advisers, there are in fact a wide range of solutions that vary greatly in terms of their sophistication, target market and end user.

Moneybox has just launched an app designed to introduce its millennial target audience to savings and investment by rounding up purchases to the nearest pound and sweeping the residual cash into a stocks and shares ISA, with an investment portfolio selected according to their risk profile.

‘there are in fact a wide range of solutions that vary greatly in terms of their sophistication, target market and end user’

Scalable Capital recently launched its direct to consumer platform but with a sophisticated risk-based approach that may appeal to the more mature, relatively experienced investors that are reportedly early adopters of the robos.

With a similarly risk-based model, RiskSave Technologies recently met its crowdfunding target in double quick time giving the company a pre-money valuation in excess of £6 million; Wealthify is well on its way to a £1 million target, attracting £650,000 from 350 investors on Seedrs.

Whilst some of the new kids on the block relish the ‘disruptive technology’ tag, others are exploring the ways in which digital technology can dovetail with traditional advisers and wealth managers; some predict that automated advice will underpin a whole new generation of financial advisers.

Not to be left out, the big boys are creating strategic partnerships to ensure that they have a robo option in their toolkit – LV claims to have the only genuinely automated solution in the pensions space following its acquisition of a majority stake in developer Wealth  Wizard – and Allianz has pepped up its presence by acquiring a minority of Money Farm;  Solmaz Altin, chief digital officer of Allianz, said: ‘The combination of online and offline advisory has become a key trend in the wealth management space enabled by technology.’

‘some predict that automated advice will underpin a whole new generation of financial advisers’

For the most part homo sapiens providers of investment advice have been able to compete because they offer active management, while robo-advisors predominantly serve up a portfolio of passive investments – normally ETFs.

However, the Allianz deal with Money Farm raises the prospect of its platform using actively managed investments.

The government’s 2012 Retail Distribution Review changed the landscape for investors entirely and meant that there were effectively three available options – Do it With Me, Do it For Me and Do it Yourself.

Because previously disguised commissions were made explicit by RDR far fewer people felt inclined to pay for advice and those advisers that remained were reluctant to provide advice to those with smaller sums to invest; users of www.diyinvestor.net may feel sufficiently confident to make their own investment decisions but for those that are not, an algorithmically selected, risk-assessed portfolio of passive investments served up by a robo-adviser ticked a number of boxes.

With the FCA keen to encourage this ‘next generation’ advice and plug the advice gap with relatively low cost digital investment management, the sector has attracted many new entrants that have predominantly found new ways to serve up the two fundamental principles of investment management – Modern Portfolio Theory and the Efficient Market Hypothesis.

However, a new trend from across the Pond is for platforms to offer active management to differentiate themselves from robo-advisors that offer passive management only.

Passive funds, such as exchange-traded funds (ETFs) which underpin robo-advisers have lower fees which means that typically total fees are less than 1%; people don’t want to pay high fees without receiving the personal service that a financial advisor provides.

Whereas robo-advisers deliver a more generic solution based upon information such as time horizon and attitude to risk entered by the user, active investments can be used to provide a more customised approach.

For those wanting more active management but not wanting to invest with a traditional advisor, another niche has been carved in the robo landscape.

Pennsylvania-based Alpha Architect brings active management to the robo-advisor experience – at a price; whereas many platforms allow clients to open an account with just £1, Alpha requires a $50,000 minimum investment.

Setting the bar so high means that millennials are unlikely to be knocking down its door, but what Alpha Architect may be cute in addressing is the fact that early adopters of robo-advice have been more seasoned investors with more money to invest, but often still unattractive to advisers that require a six-figure sum to invest.

‘The combination of online and offline advisory has become a key trend in the wealth management space enabled by technology’

Those who qualify for their services are charged just 0.25% annual management fee, which compares favourably to many robo-advisers.

Robo-advisers were initially designed to target investors with moderate assets to invest – those interested in investing but unwilling or unable to pay for traditional advice.

By using low cost passive investments robo-advisers kept fees low; what Alpha Architect is doing is targeting a market that still can’t afford a traditional advisor, but wants actively-managed investments.

This is a very new and fast evolving sector; in the States Wealthfront and Betterment were quick out of the blocks and were swiftly joined by behemoths like Charles Schwab.

In the UK there have been a slew of start ups and considerable interest from institutions looking to ensure they offer a full suite of products; the rule book is being written along the way, with companies such as software provider Selectapension from leafy East Sussex recently unleashing the ‘Pension Monster’ on an unsuspecting world.

Robo-advisers offering active investments is another variation on a theme and it will be interesting to see how the Allianz/Money Farm deal pans out; it could be that such a proposition  appeals to millennials who started off taking ‘traditional’ robo-advice, but now have more to invest and can afford to have more personalized service.

One thing’s for sure the fintech ride will be fast and exhilarating and the proliferation of different models and ensuing customer choice can only be a positive thing for UK investors.

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