Hybrid or fully digital? The debate continues

The British Financial Conduct Authority published the summary of its research on the attitudes of the representative British citizens towards automated financial advice. The outcome of the conducted survey suggested that in 57% of the cases, the participants of the study rejected financial strategies generated by algorithms. Key features attributing to the decision of whether to trust robo advice or not were age, economic status and financial literacy. The study suggests it may still be difficult for fully automated financial advice providers to tap into mass markets. An obvious conclusion of this would be to add a feeling of human presence to the automated offerings. Several industry participants, such as Nutmeg, Betterment and Capital One, have already committed to this approach. Syfe, the Singapore-based automated investment advice platform has also announced adding human services to its offering this month. In our experience within the Swedish market, there is tangible value to leveraging a hybrid approach. We see that some of the biggest financial institutions automate the processes of creating investment advice and compliance reporting while leaving communication with customers to human advisors. Such an approach allows the firms to leverage the cost reduction driven by automation, while at the same time create quality experiences for their customers, equipping the advisors with powerful decision-support tools and allowing them to spend more time on revenue-generating activities.

Providing financial advice to employers

This November marked the beginning of another trend within wealth management business models – the expansion of automated financial advice providers to workplace markets. FT Advisor reports that OpenMoney has bought Steve Bee's employee benefits platform to target small and medium-sized enterprises, which the robo-adviser believes are untapped in their potential to close the advice gap. Steve Bee founded Jargonfree Benefits in 2013 in a bid to offer employees at SMEs access to the same standard of workplace benefits as enjoyed at larger firms. Financial Times reports that the digital platform WealthWizards, a provider of automated financial advice offering myEva, takes a similar step. Currently, most of their revenues come from employers providing the financial health app for free to their employees. We see this trend as an exciting development within the emerging WealthTech space because the B2B focus could unlock the benefits of financial planning to the traditionally underserved population and play an important role in improving accessibility of high-quality financial decision support.

Regulatory concerns about robo-advisors

There is a growing concern among the regulators that in the context of the digitalised offerings, the boundaries between the regulated advice and execution-only investment platforms are becoming blurred, which potentially puts the customers at risk. As reported by the Financial Times, Wanda Goldwag, the chairwoman of the Financial Services Consumer Panel, says she is "concerned that regulated advice is not being clearly distinguished from 'execution-only' transactions" (). Although the British FCA declined to comment on whether it shared these concerns, it has previously highlighted "weaknesses" in the way some automated robo advice services support vulnerable consumers, such as those who had recently suffered a bereavement. However, we believe that the algorithmic nature of the automated financial advice solutions, unless properly regulated, could cause more significant damage for the consumers – if something goes wrong with the algorithms, it will go wrong for many customers at once. Therefore, it is essential to have a rigorous validation framework imposed and monitored by the authorities to minimize the risk of such events.