Robo-advisers Target Pensions
Robo-advisers are looking to venture beyond general investment an ISA accounts with a large number of deals predicted to be struck in the coming months with Self Invested Personal Pension (SIPP) providers.
SIPP wrappers have traditionally been used by relatively sophisticated DIY investors to house their investments during the accumulation phase of their retirement planning, and to achieve income in retirement.
The list of investments that can be included in a SIPP is long, inter alia:
- Unit trusts.
- Investment trusts.
- Government securities.
- Insurance company funds.
- Traded endowment policies.
- Some National Savings and Investment products.
- Deposit accounts with banks and building societies.
- Commercial property (such as offices, shops or factory premises).
- Individual stocks and shares quoted on a recognised UK or overseas stock exchange.
Now portfolios generated and managed by digital wealth managers will be included and a large number of SIPP providers are believed to be in discussion or negotiation with robo-advisers to provide pension administration in support of their existing technology.
SIPP administrators Liberty SIPP and Embark Group recently told FTAdviser that they had signed several contracts with firms that provide robo-advice, and that more were in the pipeline. Matthew Rankine, Liberty SIPP’s Director of Sales and Marketing said the firm had already signed three deals to provide SIPP administration to robo-advisers, with two more about to be signed.
Flying Colours, a low-cost online and phone-based advice service, is one of these firms, established by Guy Myles, a founder of Octopus Investments.
Mr Rankine told FT Adviser that ‘with as many as 50 or 60 robo-advisers and online investment start-ups attempting to break into the market, the issue was not finding companies looking to make deals, but finding the ones that would succeed.
‘We’ve got to pick the ones that are going to do the numbers they say they are going to do,’ he said, adding the firm had knocked ‘quite a few’ providers back.
‘People see it as a bit of a gold mine. Every single one of these meetings I have, they all quote the advice gap. Not everyone is going to make it.’
Embark Group currently provides a white labelled SIPP to UK robo trailblazer Nutmeg; marketed as the ‘Nutmeg Personal Pension’ it has already encouraged ‘multiple thousands’ of customers to squirrel money away for their retirement.
‘Nutmeg Personal Pension has already encouraged ‘multiple thousands’ of customers to squirrel money away for their retirement’
Embark Group Chief Executive Phil Smith says that his company has signed five deals with robo-advice firms to white label SIPPs and hopes to have a total of ten firms using its platform by the end of 2017.
Mr Smith said that Embark faced a similar challenge to Liberty SIPP in that its problem was not finding willing partners, but rather selecting the ones that have the business model to succeed.
Mr Smith explained that there are likely to be few overnight successes, saying: ‘For a typical new start-up robo-adviser, it will take around ten years from start to finish to have cumulative profitability’, dismissing fears that Nutmeg’s much increasing, and much publicised losses were a sign that its automated advice model is holed below the waterline.
‘robo-advisers have thus far been slow offer pension wrappers’
Aside from the spellbinding work done in the area of workplace pensions by Leamington Spa’s Wealth Wizards, robo-advisers have thus far been slow offer pension wrappers, tending to focus on ISA and general investment accounts.
Whilst that has so far robbed the robos of the ability to deliver a holistic view of a client’s investments, John Fox, MD at Liberty SIPP, explained that robos had come to SIPPs last because the requirement to have a fully regulated provider meant that it was difficult to keep costs low; most SIPP providers did not have the straight through processing technology to provide SIPP administration at the cost robo-advisers required.
‘All the robo-advisers are, by their very nature, invested very heavily in technology’ said Mr Fox, ‘there are very few SIPP providers who could sit down with them and say this is how we’re going to do the straight-through processes.’
‘You need technology to do the work, not people. But in the SIPP world, people do most of the work.’