Robo-advice is considered by the UK wealth management industry to offer the potential for efficiency gains and the opportunity to attract new business, but is also considered a threat by many.
Janine Menasakanian, Head of Wealth for Vanguard’s UK business.
In a survey of UK wealth managers carried out by low-cost exchange-traded fund provider Vanguard nearly 40% of respondents said robo-advice could compliment their business in the next five years. Equally, nearly 40% of respondents said they viewed robo-advice as a threat. The rest said there would be no impact to their business or they were yet to form an opinion.
Janine Menasakanian, Head of Wealth for Vanguard’s UK business, said: “The advent of the robo-advice age is creating significant hype and so it’s not surprising that wealth managers are considering the impact over the long-term. What we do know is that technology is here to stay, so wealth managers will need to consider how to embrace the advantages of technology whilst still emphasising the personal, trust and relationship-based parts of their value proposition.”
In the US, the robo-advice movement is picking up speed with providers such as Betterment and Wealthfront gathering significant assets. Investors have been attracted to the accessibility and value of these services which employ algorithms to deliver low-cost online portfolio management. The use of ETFs in these portfolios also works to keep costs down.
Menasakanian concluded: “The survey findings show that wealth managers need to consider a range of operational, regulatory and investment issues to ensure their value proposition remains relevant and compelling. We are committed to helping wealth managers add value to their client relationships, to give them and their clients the best chance of investment success.”
Vanguard have a robo-advisor service in the US known as Vanguard Personal Advisor which, for investors with a minimum investment of $50,000, combines the personal attention of an advisor with technology to deliver an investment advice service for a low annual fee of 0.3%.
The Vanguard robo-advice service is currently not available in the UK and, in general, the UK trails the US in the development of these services. Nutmeg was the first high profile provider to bring a robo-advisor product to market in the UK. Their innovative website provides the investor with portfolio options based on their risk preference, which they determine through a behavioural questionnaire.
Large industry players look poised to make an entrance: iShares has recently announced partnerships with IG Group in the UK and InvestBanca in Italy to launch a range of ETF-based portfolios. There are also a number of start-ups developing online wealth management solutions for the UK market; ETFmatic and Zen Assets are two providers who are aiming to bring such offerings to investors soon.