Robo Advice – friend or foe to the advisor?



By Eugene van Rensburg, Head of Wealth Management SA, IRESS


Robo-advice is a hotly debated topic, both with regard to the term itself and what it represents but the term is broadly used to describe any automated direct to customer financial advice or guidance. The term was first used to describe the on-line, self-led investment propositions developed by a number of start-ups in the US, e.g. Market Riders, Wealthfront, Betterment and others. These have since been followed by a number of similar start-ups around the world. More recently the term has also been applied to applications that seek to advise, or guide, consumers through the process of selecting packaged retail investment, savings and protection products, i.e. to enable consumers to address specific rather than holistic needs.

The emergence of robo-advice has been met with some concern from advisors around the world as the inappropriate depersonalisation of the core value of personal advice and it has been speculated that it could ultimately lead to the disintermediation of face-to-face business models. Others believe that it offers an opportunity for advisers to better engage with clients and to make their businesses more efficient.

There has also been talk of robo-advice or digital advice enabling the provision of advice to mass-market segments, typically uneconomical to cater for with traditional face to face advice provision. I believe it is likely to have wide market appeal. Many mass-market financially naïve consumers will be attracted by the educational aspects and simplicity of these services enabling them to move at their own pace at a price they can afford. Similarly, some highly experienced investors will be attracted by the lower costs, automated rebalancing and higher levels of on-line access that robo-advice services typically offer. Over time technology and digital channels will be used to deliver an expanding range of services to an increasing variety of consumer segments and, as such, the appeal of ‘robo-advice’ is expected to grow.

So how has this progressed to date and how can advisors best take advantage of this?

The direct to client market landscape

Due to the relative infancy of the direct to client digital landscape, and its start-up origins, the US is used as a barometer of the success of robo-advisors in attracting assets under management. Investment News[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][i] reported in January 2016 that the assets under management for Robo advisors in the US, as reported by the US Securities and Exchange Commission, grew by 209% year on year from January 2015 to January 2016 whilst hybrid robo-models, typically deployed by large existing investment providers, grew their assets under management over the same period by 53.76% year on year. This report declared the robo-advice assets under management for the new digital platforms to be $11,743bn in January 2016 whilst for hybrid robo-advisors it was $136,944bn. Whilst these are material nominal assets under management it is important to note that this represents less than 0.25% of the Private Financial Wealth in North America and 0.5% of the total Assets Under Management[ii], as reported by Boston Consulting Group in their Global Asset Management and Global Wealth Reports of 2015. This indicates that robo-advice is serving a need in the market that has previously been neglected albeit for a small segment of the overall investment market.

Global digital capability trends

Financial services advisor and product businesses are feeling the pressure from more demanding better informed customers to adapt and improve the client product and service experience. These businesses are also experiencing a difficult economic environment forcing them to innovate around operational efficiency and sales effectiveness.

The Boston Consulting Group, in their Wealth Manager Performance Benchmark Report of 2015, highlighted the top investment priorities in global financial services provider businesses as the improvement of sales effectiveness and the development of digital capabilities. The survey examined the total investment allocation by wealth management financial institutions and focused on the following two specific categories, i) investment to enhance existing business, and ii) expand into new frontiers. From this research the priorities were ranked as follows:

  • 1st Improve sales force effectiveness – 17% investment
  • 2nd Enhance digital interfaces – 14% investment
  • 3rd Develop a digital advisor channel – 10% investment
  • 3rd Improve operating efficiency and cut costs – 10% investment
  • 3rd Increase collaboration with other units – 10% investment
  • 6th Acquire competitor assets – 9% investment
  • 7th Develop asset management or capital market capabilities – 8% investment
  • 8th Develop new client segments – 6% investment

These priorities show a clear congruence of investment into a multichannel strategy underpinned by technology solutions to provide scalability and efficiency. The overall emergent investment theme seeks to enhance the overall customer experience and improve business efficiency whilst enhancing and supporting human sales channels.

Digital channels as strategic asset to the advisor

Financial institutions wishing to adapt their business models to take advantage of the new regulatory and customer environments will need to strategically employ technology as an integral component of their advice and overall business value proposition. A technology platform needs to incorporate an integrated suite of client front office applications with a common infrastructure connected into multiple backend support systems. This while remaining logically consistent across these systems and supporting evolving and changing client value propositions and compliance requirements. Such a platform would be required to deliver a single client view with business processes to enable advice congruence and unified regulatory compliance in a multi-channel and multi-platform environment. The platform needs to enable customers to define their rules of engagement with financial services providers and enable moving between the multi-channel products and service offering of the financial institution. The following diagram illustrates the high level architecture of an integrated scaled omni-channel customer financial services advice platform supported by multi-channel institutional capability.


The ideal technology solution is modular and scalable that supports and enables the distribution of financial services products whether it is to extend existing value propositions, or to develop new ones, to meet the needs of a rapidly evolving market. The solution should enable a client centric omni-channel experience built on robust multi-channel product and service dynamic capabilities of the financial services business it serves.


Whilst initially many robo-advice services were developed by new market entrants taking an adversarial position in relation to the traditional face-to-face advice business models the growing trend is for these disruptors to align themselves closer to traditional investment businesses as a complementary service solution to the traditional advice businesses. There has also been a marked trend for traditional financial services advice businesses to develop their own digital robo-advice value propositions. The market adoption has shown that robo-advice channels serve a dual purpose, this being firstly to introduce and develop a new underserviced market segment into investments and savings products and services, and secondly to enhance the service levels and expand the range of products and services to existing clients of traditional advice businesses. The clients’ relationships with financial services providers is often complex and varied. Sometimes consumers are happy to self-serve, sometimes they want help and sometimes they just want somebody else to do it all for them. This has resulted in financial services businesses recognising the need to enhance their client engagement models in a manner that reflects the changing needs and capabilities of their clients, improving the client experience at every interaction whilst improving their business efficiency to adapt to these changes. Robo-advice employed in a multi-channel capable environment provides an opportunity to reach a wider audience and to offer a broader range of products and services that is able to meet the complex and varying demands of the clients they serve.

Robo-advice should not be viewed as an adversary or alternative to traditional advice models, but rather an opportunity for advisors to grow and scale their business as part of a multi-advice, multi-channel proposition.



[ii] Boston Consulting Group Global Asset Management Report 2015: Sparking Growth with go to market excellence and Boston Consulting Group Global Wealth Report 2015: Winning the Growth Game.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]