Can human-based advice compete with robo-advice? The age of robo-advice has arrived – mimic it, differentiate from it or join it!

Wealth Management and Private Banking

19 July 2016

Wealth Management and Private Banking



Experts: Sim Sangha and Tessa Lee, Sammedia

Key message

Robo advisers have accumulated assets at a rapid pace over the past four years by attracting a high level of demand from mass market clients. Traditional wealth managers can capitalise on this opportunity through adding complementary digital capabilities to their services with the prospect of “bionic” advice appearing as a favourable solution.


  • Robo advisers have generated swift levels of asset accumulation with heavyweights Charles Schwab and Vanguard successfully leveraging their distribution networks to capitalise on the growth trend.
  • Technology can never fully replace the nuances of a human adviser although there is a niche for robo advisers, particularly within the mass market space.
  • A hybrid solution where digital technology can complement the abilities of a human adviser is likely to be a winning approach, as evidenced by the success of Personal Capital.
  • Cost and regulatory requirements are considered as barriers to entry although clients will increasingly demand digital solutions from their traditional wealth managers as robo advisers develop.

Key themes

The session opened with discussion around the general definition of robo advice and the various operating models that have been grouped under this term. Robo advice models are generally defined as online money managers with whom clients can invest without the need to see a physical adviser. Robo advisers have rapidly accumulated assets over the past four years with Vanguard and Charles Schwab attracting sizeable assets onto their online offerings through their substantial distribution networks.

Some delegates questioned the difference in terms of suitability requirements between a pure robo-adviser and a ‘guided sales’ platform such as Hargreaves Lansdown’s HL+. Furthermore, the boundary between advice and guidance still constituted a grey area within the FCA’s regulation for a number of delegates.

Discretionary robo-models such as Nutmeg and Wealthfront have attracted a high level of demand from mass market clients, many of whom have fallen into the ‘advice gap’ following the implementation of RDR in the UK. The majority of delegates acknowledged the huge demand among clients for robo-advice, however, delegates were split on the scale of the threat it poses to traditional wealth managers.

One delegate likened robo-advisers to Boots in the sense that people could self-diagnose needs and then shop at Boots for a simple remedy. Nevertheless, a conventional doctor (read: traditional wealth manager) would be needed for more complicated ailments or concerns.

In terms of current capabilities, most delegates saw robo-advice in the context of traditional wealth managers as simply a complementary distribution channel to their existing businesses. Wealth managers tend to cater for a more diverse range of clients where different channels can serve different needs. For example, clients could use a digital platform for basic reporting functions and contacting advisers through social media. One delegate highlighted the fact that “tech can never fully replace a conversation” and that nuances around complicated issues could only be fully communicated by a human adviser. Indeed, Nutmeg has even moved to hire human advisers as part of their “digital branch” strategy this year.

Another topic of discussion was the cost of client acquisition among robo advisers and the real profitability of the industry despite the breakneck speed of asset accumulation. One delegate mentioned that an independent operator without a distribution channel such as Nutmeg typically has to spend hundreds of dollars to acquire a client. Industry stalwarts such as Schwab and Vanguard can typically acquire a client for around eighty dollars. Another delegate also used the example of Schroders’ acquiring a stake in Nutmeg to understand its digital marketing strategy rather than the underlying technology. Moreover, robo-advisers mainly use the same algorithms that turnkey managers in the US have been using for years. Therefore the technology is not innovative in itself.

Some robo advisers have moved to differentiate themselves as innovators with so-called “bionic” offerings which complement digital technology with face-to-face advice. Personal Capital was given as a case study where clients can use its account aggregation tool to have a complete picture of all assets held with different firms. Subsequently, its technology can analyse the health of a client’s portfolio and determine whether capital is being held in underperforming investments or in overcharged accounts. If a sizeable sum of client assets is held in these accounts then a human adviser can prompt the client to discuss their investment strategy with them. The success of Personal Capital comes from providing a complete dashboard of a client’s financial life and as one delegate put it:

“If you control the interface, you control the relationship”

Other industries have led the way forward with this kind of business model with disruptors such as Airbnb and Uber providing an interface rather than a direct service. A number of delegates noted the opportunity for independent wealth managers to have a first move advantage in this area as they can request third-party information to build a comparable online interface. However, some delegates alluded to barriers to entry around cost and the additional regulatory requirements that could come with such a solution. While undoubtedly an account aggregation tool would appeal to many clients, research has shown that clients do not want to pay the same price for digital advice as they would do for human advice. Therefore it is a question for wealth managers as to whether they join a race to the bottom in cost or whether they can justify an AMC of 1% through conventional services?

The session concluded with a quick round of future thinking on how robo-advice would evolve over the next two to five years. A number of delegates foresee more acquisitions in the robo-adviser space as traditional wealth managers seek to buy technology rather than build it themselves. Furthermore, some delegates expect the big four banks in the UK to provide a robo-mass market offering in the aftermath of FAMR. It was noted that Santander have recruited dozens of advisers in the UK this year with the high street bank seeking to capitalise on its strong brand and existing client base. Delegates were split as to whether the pace of robo-adviser asset growth could continue at its current rate but there was agreement that there will be a place for robo-advisers in the wealth management industry.


Robo-advice has proven to be a successful business model within the wealth management industry although the technology needs to develop further in order to be considered as a true disruptor. Future hybrid approaches where advisers can make use of robo-technology will attract high client demand although some people will always require a dedicated face-to-face proposition.