Is the UK ready for investment advice given by robots? Robo-advice set to transform how people save

Where should their savings be directed, and how can they ensure their investments sustain regular payments once they have retired? 

A new industry has sprung up to plug the advice gap in the market for these savers. Robo-advice, where typically investment portfolios are built using clever computing algorithms, removes the need for any human interaction and can therefore deliver a tailored investment portfolio for a fraction of the cost of using a traditional adviser.

Most robo-advisers typically offer automated portfolio management, while allowing individuals to make their own investment choices. It is this automated approach that appeals to increasingly internet savvy people who are demanding more flexibility and ease of use when managing their money. 

The industry is flourishing in the US, where there are now more than 200 robo-advice platforms. It is estimated that 1 in 5 customers that use banking services in the US are aware of automated online investment services, according to research from consulting firm A.T. Kearney. 

Still in its infancy in the UK, critics argue that the new digital players can’t compete with the traditional stalwarts of wealth management, such as Hargreaves Lansdown and St James’ Place. While others point out the system is not suitable for complex retirement planning and therefore can’t compete with a human adviser, none the less, the industry is tipped for rapid growth as it becomes increasingly sophisticated. 

One company changing the robo-advice landscape in the UK is Wealth Wizards, which has pioneered the development of expert online regulated financial advice in the UK. 

Aiming to democratise pension advice, Wealth Wizards has led the way with its tech-friendly approach to retirement planning that combines investment expertise, chartered financial planning and software engineering. Online advice apps allow users to manage their portfolios digitally, while further advice is offered over the phone for those who require more guidance. 

Andrew Firth, Chief Executive at Wealth Wizards, says Britain is ready for the next wave of automated investment. 

“Wealth Wizards is offering robo-advice that makes investing for retirement much more inclusive because our online apps provide high-quality advice that is offered at a great price. Some people are reluctant to meet with financial advisers, and this puts them in control. A lot of our users spend time on a Sunday afternoon, when traditional financial advisers wouldn’t be available,” he says. 

“Pension Wizard’s advice is simple in structure, aiming to appeal to the majority of people. Customers input key aspects about their financial circumstances, such as whether they have any previous investment experience, how long they will be investing for, what they hope to achieve, and how much they can afford to lose. An algorithm will then direct them to the best portfolio based on their answers and the level of risk they are willing to undertake.” 

“We typically favour tracker or passive funds to undercut the high charges for many actively managed funds.” 

Wealth Wizards, which launched in 2009, provides regulated advice, as any investment advice made through the service is treated as a personal recommendation and therefore liable to Financial Conduct Authority (FCA) rules and regulations. 

More established insurance providers are also launching robo-advice tools. These include Fidelity, which owns HeadStart, and LV=, which took out a stake in Wealth Wizards earlier this year. While robo-advice has remained relatively under the radar in Britain, the authorities are now looking more closely at the sector. Two months ago, the Treasury and the FCA launched a joint consultation into how British consumers could access high quality, affordable, tailored financial advice. 

The findings are due to be reported in the first quarter of 2016 under the Financial Advice Market Review, and robo-advice is expected to feature prominently among its key recommendations. While the industry needs some tweaking in the UK, robo-advice gives the majority of people the chance to make wise investment choices at an affordable price. City watchers expect it to become the next big area of growth in the finance industry over the next few years.