I’m going to say something so obvious, so transparently clear, that it feels crazy it needs saying at all. Many of you – whether you are advisers, journalists, FCA – may well read this and go “Duh, yeah, and?”
I feel the need to say it, however, because nobody else is. So Grandma, take a seat and let me show you something about these eggs…
Robo Advice is not advice.
From my research (I looked at three web sites for about three minutes each) the robo advice that everyone seems to worried about is automated investment portfolios.
That does NOT constitute financial advice. There is no tax planning, no pensions advice, no life planning considering and challenging life objectives and motivations.
They’re not cheap either. One I looked at offered a fee of 0.75% of portfolio value. For an automated system with no financial advice. That’s comparable to the charges of many advisory firms.
But – and this part if where I clinch the award for stating the bleedin’ obvious – advisers do give advice. Financial planning is about waaaaaay more than investment management. Indeed, I’d even go so far as to suggest the investment management is perhaps the least interesting part of what we do. It’s the engine in the car. Crucial, but but of no use if the driver has chosen the wrong destination. Or put in the wrong petrol.
In an article in The Times on the subject Andrew Ellson suggested robo advice aligns a person’s portfolio to their risk – a statement with which I agree (albeit a simplified risk assessment based on a questionnaire).
He also said they align the portfolio to a person’s life objectives.
No they don’t. That’s financial planning. That’s advice.
Don’t get me wrong, I’m not against robo-advice sites. They serve a purpose and allow more people access to investments.
However my concern is that people buy what they consider to be financial advice based solely on price. Marketing based on a message of ‘Use our web site for financial advice because it’s much cheaper than using an adviser’ is misleading.
One of the largest automated investment websites (can’t bear using that ‘robo-advice’ term any more) is Wealthfront in the US. In their fees section their refer to the ‘Annual advisory fee’. You can’t claim to offer an advisory service in one section and then boast of being ‘Truly automated’ in another. It is an automated system which does not offer advice. And that’s fine. But be honest about it.
We – the media, the FCA, the financial planning industry – need to make sure that people get the service appropriate to their needs. Calling something advice when it is not is taking us in the opposite direction.
Thanks to Alistair Rush of www.fiveraday.co.uk for his input into this article