Robo advisors on the march and genuinely democratising investment
We human types love to be able to compartmentalise things; when the crop of next generation digital investment platforms came along it was just too tempting not to throw a blanket over them and dub them ‘robo advisors’ – and cue pictures of robots and terrible puns in the press.
Sure, some offered ‘financial advice’, others ‘guidance’, some ‘digital wealth management’ and yet more ‘automated investment management’, but they were the same, right?
Well, yes, although some invested via ETFs and trackers, some via smart beta ETFs and others via actively managed funds; pardon?
But they were all cheap, right? er, no – some worked out to be more expensive than traditional, rather more Hob-Nobby advisers; ah.
To make things even more confusing, despite the moniker, Muckler has yet to see a single robot in red-braces placing a buy order for pork bellies and the most successful services to date appear to be those offering hybrid – or, ‘cyborg’ – advice if you will. Even the most staunchly ‘digital solutions’ will have someone at the end of a phone or a chat bot.
The situation was compounded by the difficulty City regulator the FCA had, and still has, in the precise definition of what constitutes advice – or perhaps more accurately, who carries the can when things go squiffy.
‘one thing the new kids on the block were agreed on was that they were there to ‘democratise investment’
However, despite all of this uncertainty, the one thing the new kids on the block were agreed on was that they were there to ‘democratise investment’; they were going to engage the next generation of investors and for that Muckle doffed its cap.
However, they set about their task in differing ways, and UBS SmartWealth may just have fallen foul of its own decision to set a minimum subscription of £15k which would have had many a millennial choking on their avocado toast – more.
Despite the fact that a number targeted millennials by allowing investments from just £1 and often via a whizzy app, early adopters tended to be more mature, wealthier investors, looking for a low-cost, low-maintenance, Do it For me investment solution, and sometimes income in retirement.
However, a recent survey by Boring Money shows customer numbers and assets under management booming as robo advisors gain market share, with triple digit growth over the past year as those less confident and new to investing opt for ready-made solutions.
As in the States the FIRE movement – those seeking Financial Independence, Retired Early – is gathering momentum as self-reliance is necessarily replacing state support.
Albeit from a relatively low base, total assets under management (AUM) across robo advice websites grew by 80% in the last twelve months with customer numbers showing triple digit growth.
Holly Mackay, founder of Boring Money, says this trend is being driven by a growing appetite for off-the-shelf investment options, explaining: ‘These ready-made investment solutions are in part catering for less confident newcomers.’
However, despite this trend recent analysis of the top-performing robo advisors found that by simply investing in a FTSE 100 tracker fund investors would have achieved better returns.
Although robo advisors are growing customer numbers and AUM, they still represent only a tiny share of the total market; the robos’ share grew from 0.75% a year ago to 1.2% at the end of Q2 2018.
‘it is difficult not to conclude that UBS might just have miscalculated’
Part of this growth has been accounted for by the banks as they have rolled out their own solutions ; Barclays and RBS/NatWest currently offer automated advice, while HSBC, Lloyds, Nationwide and Santander are understood to be planning their own products.
Whilst it may reduce the cost of customer acquisition as banks have a large customer base to market to, as UBS’ experience shows, having a big brand name doesn’t guarantee success; however, despite the fact that its SmartWealth platform is set to close due to lack of ‘commercial potential’, it is difficult not to conclude that UBS might just have miscalculated.
In addition to the march of the robo advisors, in general non-advised online platforms saw strong growth over the past year.
Total AUM for both online platforms and robo advisors grew from £189 billion at the end of Q2 2017 to £218 billion by the end of Q2 2018.
DIY platforms now hold some 4.5 million customer accounts, up from 4 million at the start of the year; according to Boring Money, around 400,000 of these accounts are from groups moving their workplace pension customers onto their direct online platforms.