What is robo advice?

In recent years, the wealth management industry has been made to change rapidly to keep up with the increasingly tech-savvy consumer.

You may have come across the term robo-advisor, which is now one of the biggest trends to hit the UK market, with all the media fanfare and suspicion you might expect from a new financial product.

But what are robo-advisors? Typically, they are digital financial advisers providing investors with automated and algorithm-based financial planning advice. There is very little human intervention.

Here at Moneyfarm, however, we do things a little differently. We chatted to our Head of Investment Consultants, Will Hedden, to meet the face behind the robot.

The robo advice basics

A robo advisor is another word for digital wealth management; it’s a service that enables you to manage your money online. That is the one thing that all robo advisors have in common. However, when looking at different providers, they often vary in important ways.

There is a wide range of different providers: some let you pick a portfolio, some use algorithms to trade, while others analyse your circumstances and offer advice on the investment most suitable for you.

At Moneyfarm, we fit into this last category, and can help you build an investment portfolio that matches your investor profile. That ‘robo’ term might be intimidating at first, and make investing sound scarier than it actually is.

As Will explains, “Robo advice is very upfront and transparent, which makes it crucial to provide a human face rather than being robotic. Yes, we are a robo advice company, we use technology and there’s a lot of digital analytics involved with what we do, but people are always there to help and guide our customers.”

“There’s a team of humans with expert knowledge and years of experience looking over the investments and monitoring them and deciding on the way forward.”

A smoother investment experience

The initial stages of robo advice usually don’t include much human interaction. However, this doesn’t mean the process involves actual robots, rather a number of algorithms that analyse each client. Those algorithms will assign you an investor profile, you’re not asked to say whether you want ‘high risk’ or ‘low risk’ instead you’re asked how well you understand certain financial terms.

In many cases, this is really useful, especially if you’re not sure about the level of risk you want to take. Once you have your profile, which can take as little as five minutes, you’re assigned an investment portfolio that suits your profile, as well as the level of investment you make, and the length of time you plan to invest for.

Will also argues that robo advice is low cost and this can have a big impact on long-term returns. “Here at Moneyfarm we focus on a long-term passive investment approach that keeps the costs down and concentrates on time in the market rather than timing the market, which can lead to costly mistakes.”

A financial advice gap

In 2016, the Financial Conduct Authority (FCA) published its Financial Advice Market Review and concluded that up to 16 million people in the UK are trapped in a financial advice gap, where they need advice but can’t afford it. The use of technology in robo advice lowers the costs to provide advice, and this cost savings makes the product more cost efficient which can have huge benefits to the customer.

If you’re looking to invest for the first time but don’t know where to start, robo advice can help set you off on the right footing, providing you with a wealth strategy based on the algorithm.

The human side to robo advice

Will and our team of experts believe that it is in a customer’s interest to be saving in the long term.

“We started from scratch which means we can be very focused on the consumer and target things that really improve the consumer experience,” said Will.

And if you’re still craving that real human conversation, our Moneyfarm team are on-hand to guide you through the process and discuss how to start investing, as well as any questions you may have regarding your portfolio.

Photo by Matt Noble on Unsplash