The RSMR Broadcast: Can robo-advice replace human financial advice?

15 May 2023

The RSMR Broadcast: Can robo-advice replace human financial advice?

What exactly is robo-advice? A robo-adviser is a type of financial adviser that uses algorithms to provide automated investment advice and manage portfolios. Online platforms such as Moneyfarm, Nutmeg and InvestEngine use complex mathematical models and historical data to analyse market trends and make investment recommendations based on the client's risk tolerance and investment goals.

How did robo-advice come about? There’s a new generation of investors - younger clients and those with smaller sums to invest - seeking a predominantly digital approach to help them with core investment and financial planning. These groups aren’t necessarily willing or able to tap into traditional financial advice and the robo version plugs that gap.

Why has robo-advice become a thing? The robo-adviser invests your money in various funds and charges fees based on the value of your assets. The fees can vary widely, but across a portfolio they typically range from 0.05% to 0.25%. There’s no adviser salary to pay so robo-advisers charge a fraction of the management fee of traditional financial advisers. The increasing demand for low-cost investment advice triggered the development of a robo counterpart but tech-savvy millennials also fuelled this development as they are partial to direct investment via a digital platform. The pandemic accelerated a general shift to online financial services and with robo-advisers able to operate around the clock at lower fees, robo-advice is a no brainer for investors who want access to their investments at any time and aren’t willing or able to pay for ongoing personal monitoring of their portfolio.

What’s happening in the robo-adviser market? The path to technological disruption in the financial services industry hasn’t quite been paved with gold. Most of the disruptors currently in the market have had to develop platforms, making the initial outlay a pricey affair, and as for building economies of scale in the wealth management sector, it’s a process that’s far from uncomplicated. The robo-advice sector is experiencing growth though. The integration of artificial intelligence means that robo-advisers can provide a more personalised approach and the expansion of the financial services available such as retirement planning, tax optimisation, and debt management has made it more appealing to the masses as there's now a low-cost robo-adviser option for most investors.

But what about trust? Will customers believe in an automated process to handle more significant sums? And what about long-term planning? Robo-advisers offer the convenience of a hands-off investment management strategy for a lower fee but if you need recommendations based on a holistic, personalised view of your overall financial picture, a human adviser fits the bill. With robo-advice there is limited flexibility and personalisation and of course much less human interaction so if you’re looking for some personalised guidance, the digital route may not be for you. Meeting an adviser face to face can help to develop positive budgeting and wealth management habits and when markets are volatile, a human adviser can help clients to overcome potentially detrimental impulses, steering them to make sound financial decisions.

So, the big question is, can robo-advice replace human advice? Robo-advice removes friction from the advice process and offers a streamlined solution for those looking to invest and spend less. Robots are clearly efficient and reliable when it comes to repetitive tasks with pre-determined parameters, inputs, and outputs. But when it comes to individual clients with different needs, attitudes, and requirements, the human element really comes into its own. There’s a high level of skill involved in financial planning and when we’re talking larger sums of money, guidance, and reassurance from those in the know can make all the difference.

Robo-advice may not be easy to scale but it has a place and is no doubt here to stay. It fills a previously untapped gap in the advice world and provides an option for investors who may not otherwise have access to financial advice.

As for human advice, it’s a completely different kettle of fish. If you’re looking for expert, specialist guidance when it comes to making important and potentially difficult financial decisions, an adviser can build a complete picture of your assets, liabilities, income and expenses and put together a plan to help meet your short, medium, and long-term goals. 

So really robo-advice is less about replacement and more about enhancement. When it comes to financial planning, human advisers are as relevant and indispensable as ever and robo-advice helps to roll out advice options to all demographics and gives the people the power of choice.


Dominic Brooks, Accounts Manager

Katie Poulson, Client Engagement & Marketing Manager

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