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Embark Investor Confidence Barometer

Why robo-advice might not be for who you think it’s for

  1. Robo-advice presents surprise opportunity for firms

  2. Comfort with robo greatest among wealthiest

  3. Adviser appetite for robo-advice high

Robo-advice could open a new – and unexpected – revenue stream for firms, according to the Embark Investor Confidence Barometer.

Touted as a solution to the UK advice gap by enticing less-wealthy investors, robo-advice also offers a gateway to advice to affluent investors, our results suggest.

In fact, the more assets an investor has, the greater their comfort with robo-advice, according to the Barometer.

While more than half of investors – advised or not – said the current advice model would continue to be most suitable for them in the future, almost a third (30%) of advised and more than a quarter (26%) of non-advised investors favoured a hybrid model incorporating robo-advice.

Almost half (44%) of people with investable assets of £1m or more said they expected a hybrid model (robo-advice with human advice on request) would be most suitable for them in the future, compared to a third with between £500k and £1m and less than a quarter of those in the £100-£250k bracket.

Adviser appetite for robo-advice on the rise

As investor interest stirs, advisers are gearing up to add robo-advice to their offering, but are split on whether to partner with a provider or build their own tech.

According to the latest Barometer, only a fifth of firms do not see robo-advice as part of their proposition inside the next decade.

However, firms were almost equally split on whether they would add robo capabilities by partnering with a provider, or by building their own capability.

Meanwhile, a tenth of advisers indicated they already offered robo-advice as part of their proposition.

But is hybrid model headed for mainstream?

While advisers are confident in their own robo-advice plans, they appear less sure about its broader adoption by their peers.

Almost half of advisers (43%) said they expect today’s model – where regulated financial advice exists largely as a distinct offering from robo-advice – to continue to be the most prevalent in the future.

A similar proportion anticipate a hybrid model of digital portfolio management alongside human advice will be the most common.

A smaller number of advisers felt an advice model driven purely by artificial intelligence could be the most prevalent.

Advice vs guidance uncertainty even among those advised

Meanwhile, almost a third of investors say they either do not know or are unsure about the distinction between regulated financial advice and unregulated financial guidance.

While more than a third of non-advised investors (35%) admitted being uncertain on the distinction, the same was true of almost a quarter (24%) of advised investors.

“It’s little surprise that 80% of advisers are planning on offering a robo solution – they’ve been on the receiving end of a message telling them they should do so for years. I would argue most are doing it to open the doors to less wealthy clients (who may grow into more traditional clients in the future) and to reduce overhead costs of dealing with simpler client requirements.

However, interesting among the Barometer’s findings, is the implication that offering robo-advice opens the door to affluent investors who do not currently access advice. This represents a huge opportunity for firms and may be another compelling reason to consider adding robo-advice.

Another view could be that it may reduce the income they make from wealthier clients who elect to use the (presumably) cheaper robo option on a more frequent basis.

Would this surprise anyone? Typically, wealthier clients are more engaged in the protection and growth of their wealth so, if they remain at the forefront of the market as it evolves, we should expect them to show a stronger interest in new advice styles as they emerge.

The market is going to fundamentally change, but it will be slow, and each firm needs to choose how it is going to evolve alongside it.”

Toby Larkman
Chief Commercial Officer, Embark Platform

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