Swiss financial service UBS have this month announced they're introducing a robo-advice offering, in a bid to attract younger people.
Robo-advice has been prevalent in financial headlines throughout 2016, as more firms get on board with the new technology. But what exactly is robo-advice? How does it work in an industry that has been human for so long, and who can actually benefit – and how?
What's Robo-advice?
No pun intended, but it's pretty much what it says on the tin: financial advice from a robot, rather than a human.
Of course, nobody's going to be scheduling a meeting with C3PO. Rather, an online wealth management system provides automated investment portfolio management. It uses a series of algorithms based on market predictions and the client's attitude to risk.
Robo-advice actually uses the same software human advisers do when managing portfolios. But there's still too much of a human element in certain advice areas, such as tax, retirement and estate planning. And so robo-advice has to offer a reduced service.
Who can benefit?
There are two major markets for robo-advice. The first is young people; the second is people with lower incomes than would typically seek advice. And of course, there's a large cross-over between both markets.
Most younger people have grown up with technology playing a huge part in their lives. Many will have only ever stepped foot in a bank a handful of times. So why would they think to seek out a financial adviser?
But if the option's available to manage an investment portfolio online, with automated advice based on your own risk profile, it's much more desirable – not to mention accessible.
Not only that, but by removing the human element of advice, the cost is reduced.
Robo-advice makes financial advice and portfolio management accessible to a much larger market, allowing firms to target people they couldn't before. If you're new to financial advice, it's also a great entryway. If you can see the benefits of the advice offered by a robot, just how much more could you benefit from human advice, albeit at a higher initial outlay.
The future of advice?
Robo-advice is still pretty new, particularly in the UK where regulation is strong. But in the US, robo-advice is already taking off massively. The robo-advice market in the States actually services 19 times more assets than the UK, despite the population only being 5 times larger.
It's unlikely robo-advice will remove the need for human financial advisers. But rather it should be used in collaboration with face-to-face, human, personal interaction and advice.
Robo-advice offers a great opportunity, not just for firms to target more customers, but for anyone who's been keen to step into the financial world, but have been put off by the cost of fees.
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