Chief Executive at FEIFA / FECIF Secretary General
Robo-advice financially unviable
The above was the main content of an article in a financial industry publication last month. This was based on a recent study, which found that UK robo-advisers are structured in such a way that they will lose money and “most will go bust before acquiring the sizeable assets under management needed to survive”.
Food for thought, not least for regulators – many of whom seem to think that so-called “robo-advice” is the silver bullet to solve all of the main issues of providing and delivering advice, and – most specifically – filling the advice gap. There will no doubt be arguments either way as to the financial validity of automated services, but this research should at least raise questions that all market stakeholders want to see answered.
The report, produced by SCM and entitled Fintech Folly, confirmed that fees for automated advice on a £25,000 portfolio ranged from around 0.3% to 0.94% per annum, with an average cost of 0.59%. It would appear that this is insufficient, in most cases, to even come close to generating profit. As a result “one well known UK robo-advisory firm has reported spending a little over £9 for £1 of revenue”. The average client would apparently have to be invested for nearly 11 years for the firm to break even – despite research indicating that the current average period is only 3 years...