In my first blog in this short series on robo-advice, I described the battle for “hearts and minds” that robo-advisory services must win to reach mainstream acceptance by the FS industry and its customers. In this second instalment, I’ll explain why robo-advice is well equipped to win this battle in the years ahead.

In my view, it’s already clear that the robo-advice model brings some major benefits that niche players are already capitalising on. Like the barriers that I described in my first blog, these advantages arise on both the consumer and bank side of the relationship.

First, the consumer benefits. It’s a fact of life that smaller investors are often uncomfortable discussing their own personal financial circumstances. In these situations the anonymity and impersonality of robo-advice can be a major advantage, by removing personal embarrassment and thereby encouraging more people to seek financial advice, rather than just keep their savings in virtually nil-return ISAs.

A further benefit for customers is that robo-advice is much cheaper than the traditional financial advisor (FA) service, and potentially opens up responsible investing to a much wider audience with vastly varying levels of financial capacity. Not all investors need to be able to commit tens of thousands of pounds – a fact evidenced by the large number of younger investors that Nutmeg has attracted, often with relatively small amounts to invest.

A related factor is that simply investing money does not give the sense of instant gratification that financial planning can bring to customers. In other words, just buying “x” amount of shares and sitting on them is frankly not a very interesting thing to do. But being walked through various scenarios by a robo-advisor, which can instantaneously plot the potential gains from committing even small amounts over a long period of time, may pique the interest even of people with no previous experience of personal financial planning.

Of course, sitting down with an FA to do the same thing remains an option – but then the customer would probably be charged an hourly rate. A robo-advisor using an artificial intelligence (AI)-based analytics application and data lake, and enabling customers able to switch their scenarios at their leisure to view differing potential outcomes, would be both cheaper and much more accessible for the vast amount of potential investors.

And the advantages for banks? One is that robo-advice would provide a verifiable electronic audit trail of contact and advised services between the consumer and the firm, thus ensuring a much more clear-cut position in any litigation arising from “insistent investors” going against the robo-advisor’s recommendations and losing capital as a result. There’s also scope for utilising distributed ledger FinTech solutions in this area, to provide an additional layer of potential redress and safety for banks.

What’s more, robo-advice is scalable at much lower costs than traditional FA services. And while some providers may be concerned that these services would demand large-scale architecture implementations, the increasing use of APIs could open up new ways for banks to collaborate with third-party FinTech robo-advisory services.

Overall, robo-advice may be a concept whose era has not yet quite arrived – but in my view there are sound reasons for believing that it soon will. And when it does, both consumers and banks stand to benefit.

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