While automated investment platforms have allowed financial advisory services to become more accessible and scalable than ever before, recent market developments have highlighted a move towards convergence.
The right balance
Independent robo-adviser Betterment made headlines recently after announcing a move towards a more human interface. Alongside its automated service, which constructs investment portfolios at a lower cost than traditional brokers, the company will offer recommendations from CERTIFIED FINANCIAL PLANNER
TM professionals and other experts, according to
Bloomberg’s Julie Verhage. The news comes following a call from clients for “handling more advanced situations”, Alex Benke, head of financial advice and planning at Betterment, said in an interview.
Automated investment service providers have witnessed considerable growth over the past two years, attracting huge volumes of customers who are seeking low cost advice. But, “as you add assets and as you add more customers, you do need more CFP
TM professionals, because there will be more customer service involved, especially if higher-net-worth clients are there,” according to Arvind Purushotham, managing director and co-head of venture investing at Citi Ventures, who is quoted in the article.
Verhage says that the top four robo-advisers increased their assets by almost 80% last year, but concludes with a message of convergence, quoting Josh Brown, CEO of Ritholtz Wealth Management, who said: “We won’t be drawing any distinction between advisers and robo-advisers in the end.”
Bloomberg article
A hybrid solution
Banks are also exploring more collaborative advisory services, with Barclays developing plans for a new hybrid system – covering a customer’s finances in their entirety – that will “include a face-to-face element and an online offering”, according to
Money Marketing’s Katie Marriner. This follows the bank’s overhaul of stockbroking arm Barclays Direct Investing in November last year, which included a new
direct-to-consumer platform combining savings, current accounts and investments.
“The launch of our new direct investing service at the end of 2016 was the first step towards a suite of new services that will help address the savings and investing knowledge gap in the UK,” a Barclays spokesman informed reporters.
25%
The number of people with $500,000 or more in investable assets that use both online tools and a paid adviser
This move towards convergence, and the need for it, was neatly summed up by Bank of England governor Mark Carney in a
speech at a conference in Germany recently, when he spoke of fintech’s dual potential to either reduce or generate systemic risks. He said: “On the positive side, fintech could reduce systemic risks by delivering a more diverse and resilient system where incumbents and new entrants compete along the value chain.
“At the same time, some innovations could generate systemic risks through increased interconnectedness and complexity, greater herding and liquidity risks, more intense operational risk and opportunities for regulatory arbitrage.”
Money Marketing article
Convergence is key
And a recent survey from the Financial Planning Association and Investopedia,
High-tech and high-touch: investors make the case for converging automated investing platforms and financial planning, further confirms this. “Among people using automated investing services, 73% were satisfied with their experience”, says
CNBC’s Tom Anderson. “Meanwhile, 75% of people who primarily work with a financial adviser said they were pleased.”
The respondents were equally satisfied with digital and human advice, however a combination of the two is preferred. “While people who used robo-advisers were generally satisfied, 40% of those surveyed said they were uncomfortable using the services during periods of extreme market volatility,” says Anderson.
In fact, one in four people with $500,000 or more in investable assets use both online tools and a paid adviser, notes Anderson, citing
research conducted by Hearts & Wallets. “Investors are evaluating their interactions with [financial services companies] based on their feelings and responses from people at the companies to see if they can trust them,” says Laura Varas, the company’s founder and CEO, “and people trust humans more than machines”.
Despite digital’s advantages – and there are many – the industry has always recognised the value of human advice, and the emerging trend towards convergence is set to provide investors with a more secure, and personal, advisory experience going forward.
CNBC article