FinTech has been transforming banking and financial sectors for the last few years. And this trend continues to grow faster. Even the largest financial institutions are constantly improving, innovating, implementing new technologies for their customers.
Robo-advisors should have become really popular but something obviously went wrong.
What is robo-advisor?
Robo-advisor is basically a financial advisor able to manage any investment with the minimum of human involvement.
Robo-advisor is an
autonomous investment management service.
- Minimum amount required to open an account.
- Minimal service fees (0.4-0.5% usually).
- Includes most of necessary registered accounts (TFSA, RRSP, RESP, 401K and Roth IRA etc).
- Minimal investment knowledge required.
- Broad investment selection.
- Minimum investor control.
- Investment returns (5-10%).
Though robo-advisors have a bunch of obvious advantages it’s quite important to apply them in the right place and time. Otherwise they may fail as happened to Click&Invest:
In their latest news Econsultancy.com reported:
…banking and asset management group Investec is shuttering its Click and Invest roboadvisor service after reporting losses of £32m over the course of two years. £6m of the loss is associated with the capitalized value of the software Investec created to power the service.
In a statement, Investec admitted “the reality has been that the appetite for investment services such as ours remains low and the market itself is growing at a much slower rate than expected.”
“We fully appreciate that this announcement will be of real sadness to both clients and staff of Investec Click & Invest.
“Our prime concerns from this point are to minimise disruption for clients and ensure that employees are treated with respect and fairness.”
Clients will be offered to sell their investments or transfer them to another provider without charge. The the management fee has also been suspended throughout this transition period.
Click and Invest Calculator: That’s How It Looked (source)
So, what happened and what experts are saying about Investec’s Click and Invest robo-advisor shuttering:
Simon Bussy, a consultant at Altus, has long been skeptical of the viability of robo-advice businesses.
Last December Mr Bussy, who works with robo-advice firms, told FTAdvisermany robo-advisers were spending too much money on acquiring new customers to have a viable business model (ASD comment: £200-300 per each customer acquisition with the average pot of investment £10000, meaning a robo-advisor earns £70 per year considering its average charge is 0.7%), and the advertising strategies they have used have been ineffective.
He said: “I think the business models of these firms is going to have to change, they are going to have to move away from having a business to consumer model and into being more business to business, and into being technology providers, with their tech enabling the incumbent players, such as banks, to improve their proposition.”
He said the most likely outcome for such firms is they get incorporated into bigger, traditional, providers who wish to access their technology.
ASD team’s opinion and summary
Q: Does the situation with Investec mean that fintech is unable to add value to investment management?
A: Absolutely not. It definitely means that it would have been a good idea to revise Click&Invest’s business model and marketing strategy a little bit earlier to prevent such huge losses of £32m.
Q: Do robo-advisor services continue to develop?
A: Totally yes. There are a few really good examples of successful robo-advisors that have been working since 2008 and will continue to develop. It’s a matter of the right positioning, marketing and increasing trust to such services vs traditional financial institutions.
Here’s an infographic of the best robo-advisor services as of May 2019:
Best Robo-Advisors (source)