Robo-advisor: the futur of financial advising?

On the need of robo-advisors…

With high-fees, long processes and a lack of digitalization, traditional financial advising is not for everyone. It hardly addresses the needs of Gen-Y or households with less than $100.000  to invest. As a consequence, many investors now prefer to manage their financial planning themselves. Based on a Deloitte survey on 2,140 British adults in June 2012, this represents 32% of investors in the UK. However, these investors still need some guidelines and basic financial education to make wise choices. Online financial planning platforms offer a solution.

 

deloittre-report2

With fast-changing regulations and complex financial markets, financial advisors also need the help of a machine since they cannot have the expertise on the whole financial advising process anymore.

On the growth of robo-advisors…

Robo-advisors have become very popular over the past few years, especially in the United-States.

Their success in numbers (based on 2015 MyPrivateBanking Research and 2014 Deloitte survey):

  • $14bn AUM in 2014. The industry is expected to grow to US$255bn by 2020
  • More than 50 Wealth Management robo advisor start-ups in 2014 (Wealthfront, Betterment, Learnvest, Futureadvisor, Motif Investing, BforBank, Nutmeg, MoneyFarm, GénéraliEpargne, BankCare…)
  • 83% are US robo advisors

On the challenges of robo-advisors…

The development of robo-advisers is just at the beginning. Their reliability and effectiveness are thus still tricky to evaluate. Each robo-advisor has its own algorithm, its own methodologies and financial theories…which leads to very different advice!

See below the analysis by the Wall Street Journal of five major US robo-advisors.

image2

Last but not least, market regulators are still in discussion about how to regulate automated financial advice. In ESMA guidelines on client suitability assessment, the EU warned against the misuse of third-party software by financial advisors. It pointed out that financial advisors should understand how these tools were working and should use them in complement with face-to-face discussions with the client.

A policy on the specific topic of automated financial advice should be published by the end of the year by the three European Supervisory Authorities (EBA, ESMA, EIOPA).  To follow-up!

 

Publicités

Laisser un commentaire

Entrez vos coordonnées ci-dessous ou cliquez sur une icône pour vous connecter:

Logo WordPress.com

Vous commentez à l'aide de votre compte WordPress.com. Déconnexion / Changer )

Image Twitter

Vous commentez à l'aide de votre compte Twitter. Déconnexion / Changer )

Photo Facebook

Vous commentez à l'aide de votre compte Facebook. Déconnexion / Changer )

Photo Google+

Vous commentez à l'aide de votre compte Google+. Déconnexion / Changer )

Connexion à %s