Robo-advice is finally moving towards reality as regulators around the world start to assess how to make cheap and effective financial advice available to the mass market who cannot afford the fees charged by wealth managers.
Receiving robo-advice about your money or investments may be new, but the impact of computers assessing your finances is not.
The old word for ‘robo’ is ‘automated’ and your credit score; mortgage underwriting and bank accounts have not been managed by humans for a while.
Giving financial advice lifts automation up to a new level.
Software engineers write routines called algorithms that are a bit like complicated ‘if, then, else if’ statements.
Quick, cheap but risky for many
Customers fill in a form much like the current IFA’s fact find that aims to determine investment risk, retirement and financial goals, disposable cash and tax status.
The robo-advice platform crunches the data and auto directs the customer to products and services that most suit their financial profile built by the algorithms.
The advantage for consumers is the process is quick, cheap and reasonably accurate for investors with uncomplicated needs.
The service is impersonal and does not cater for wealthy clients with more specialist requirements.
Robo-investing is artificial intelligence built around historical data, so when a new market event triggers an algorithm, the experience and knowledge to react is absent.
For expats, robo-investing is unlikely to become the norm any time soon.
Like many other financial platforms and advice companies, robo web sites will need regulating and licensing in the country where they give advice.
Expats left out in the cold
Building a platform to tackle too many and diverse tax and financial needs of expats would be expensive as well as hugely complicated for a relatively small market segment.
Robo-advice is in the early stages, but on the way for many consumers.
Predictably, in an industry dominated by advisers charging fees for their time, robo-advice is seen as a threat rather than a step forward.
The trend is for automation so companies can cut costs and basic administration is transferred to the consumer, who runs their own online account.
This also switches risk for the investment platform from giving advice to simply making access to products and funds available.