These robo-advisers are essentially an online platform that automates advice based on an investor’s sum and the opportunities available. It will be available to those with sums between £500 and £250,000 for investment.
RBS’s current minimum for face-to-face financial advise is £100,000, according to the Financial Times, which will now be more than doubled under the new system.
The move comes as some predict a greater investment in ‘robo-advisers’ for wealth management and as banks look to cut costs and automate jobs. For example, we saw with HSBC that it managed to strip out nearly 3,000 jobs in 2015 thanks to automation technologies.
What’s interesting is that the traditional focus for automation in finance has largely focused on back-end operations. But now it seems that organisations, and customers, are getting more comfortable with using automated services that are client-facing.
RBS is currently still 73% owned by the government and recently posted its eighth successive annual loss, which has hindered the government’s plans to sell back its stock in the bank.
In a statement, RBS said:
We want to help as many customers as possible invest their money in the right way for them.
The demand for face-to-face investment advice is changing. Our customers increasingly want to bank with us using digital technology.
As a result, we are scaling back our face-to-face advisers and significantly investing in an online investing platform that enables us to help a new group of customers with as little as £500 to invest.
Shift to automation
Automation and the use of ‘robots’ for financial advice and wealth management has been a topic of conversation at diginomica for a number of months now. Some contributors have argued that reducing human intervention in favour of an automated process is a bad idea, whilst others have suggested that automation could help reduce risk.
I wrote recently about a Deloitte report that predicted that we would likely be seeing more of these robo-adviser stories this year. The report noted that whilst the UK robo-advisers market currently only covers less than £1 billion in assets, the US robo-advisory market handled $19 billion in 2014, which was up 65% on the previous eight months.
It noted that large wealth management firms such as Charles Schwab and Vanguard were investing in the system, which meant that others were likely to follow. Deloitte said at the time:
The UK is well-placed to use robo-advisers, given the high take-up of other online services. For example, in general insurance, nearly three-fifths of people use price comparison websites to research and buy their insurance policies. This is only going to increase, as technology develops, people become more comfortable using it and more companies turn to digital platforms. For wealth managers, robo-advice technology could mean people have access to a broader range of advice that is personalised and at a lower cost.
And noted that the cost savings could be significant:
Robo-advice can dramatically reduce the cost to the consumer, potentially to £100 per transaction.
The report argued that firms or banks looking to branch into this area of increased automation likely have three options available to them: to partner, to develope an in-house solution or to acquire.
Deloitte noted that partnering allows for a company to move fairly quickly and will likely come with lower costs, but this could also mean differing priorities down the line and potential conflicts of interest. Whilst building an in-house solution could give a firm its own competitive advantage, this could also bring more risk and require in-sourcing of skills. And an acquisition can also be a speedy route to market, but integration comes with its challenges.
It will be interesting to see which route the major banks in the UK choose to take. Given the publicity surrounding RBS’s announcement, it’s likely that other banks will be looking to follow suit and speed will be a key priority.
And as Deloitte notes, this is only the start and will not be limited to financial advice:
Digital, automated advice will likely become a standard expectation for the mass-affluent and mass-market segments. But we have seen only the beginning of what automated advice can become.
Big data and advanced analytics have the potential to broaden the scope of roboadvice
dramatically, incorporating financial planning into broader retirement, health, and wellbeing, and enabling quasi institutional research.
Robo-advice could then impact all investor segments, not just the mass-market and mass affluent retail investors.
The traditional banks need to make investments in this area to stay ahead. They’re lumbered with old,aching systems that are struggling to keep up with the newer digital-first entrants to the market. Consumers increasingly feel comfortable dealing with automated systems to advise on their financial decisions, especially when the sums involved are at the lower end of the spectrum.
However, at the higher end, I expect people will want to continue with their face-to-face advice. But that’s a trend we see across the spectrum of automation - those at the middle/lower end of the job chain are getting stripped out, whilst those higher up still hold some value.
What that means for the labour market has broader implications, but for companies it’s an obvious route to cost savings.