How does the UK robo-advice market compare to the US?

By Andrew Firth, CEO at Wealth Wizards

In both the US and UK markets, our mutual appetite for transparency and real-time information has given life to a vibrant and rapidly expanding digital ecosystem, altering the way we store, consume and use financial information.

Moving far beyond the accessibility of day-to-day banking and payment apps, the fintech industry is growing swiftly with robo-advice at its core.

The term is used to describe automated services for investment, asset, pensions and insurance management, robo-advice allows individuals to tailor their financial products via online tools and mobile apps.

Obstacles of traditional advice in the UK

Robo-advice is a convenient and lower-cost way of accessing advice and investment expertise for the masses, who have been largely priced out of the UK advice market.

In 2013 the Financial Services Authority (FSA) banned financial advisers from offering free advice to customers while earning commission from the providers of the products they recommended. Since then fees have steadily risen, pricing out many with smaller savings pots.
A poll from found that financial advisers increased their fees by as much as 16% in 2015 alone, with the average cost for pensions advice now totalling around £1,490. Resulting from this the Financial Conduct Authority (FCA) and Treasury claim that up to 16 million people could be trapped in a “financial advice gap”.
The FCA’s Project Innovate is helping the wave of Fintech innovation to navigate the way to providing regulated services. There are a range of ‘robo-advice’ services in the UK including those offering help and guidance, investment management or personalised recommendations, with more expected to enter the market imminently.

The US market

Changing the advice landscape in the US since the mid-late 2000s, consultancy firm Deloitte found that robo advisers currently cover less than a billion pounds of assets in the UK, compared with $19 billion in the US.

According to research from consulting firm A.T. Kearney, the robo-advice industry is flourishing in the US, where there are now more than 200 platforms. It’s estimated that 1 in 5 customers that use banking services in the US are aware of automated online investment services, and research suggests engagement is high among those with small and large investment portfolios.
Platforms from Wealthfront, FutureAdviser, Charles Schwab, Vanguard and Betterment have proved hugely popular in the US, and now major institutions such as Morgan Stanley and Bank of America are looking to enter the marketplace.

The UK market

New entrants such as Nutmeg, Wealth Horizon and Money Farm are focused on helping people make and manage their investments in a similar way to many of the US robo-advisers.

Among the high street banks, Royal Bank of Scotland (RBS), made headlines earlier this year when it cut the jobs of 220 face-to-face advisers in favour of the future introduction an online service. RBS’s claims its new online investment platform will enable the bank to help a new group of customers with as little as £500 to invest. Customers with more than £250,000 to invest will still receive personalised face-to-face advice.

Following RBS’s announcement, speculation has been building that Barclays, Lloyds and Santander UK are also developing online services.

Large insurers are also interested in robo advice and one – LV= has already launched a service offering automated personalised at-retirement advice, using Wealth Wizards robo advice platform technology.

Wealth Wizards, which aims to make financial advice affordable and accessible to everyone, has pioneered the development of robo-advice in the UK. Founded in 2009, Wealth Wizards offers the leading robo advice platform in the UK.

Combining three key competencies; investment expertise, chartered financial planning and software engineering, Wealth Wizards platform can support multiple advice services.

The potential of robo-advice

A 2015 US market report from research firm Cerulli Associates claims robo-advice platforms are expected to reach $489bn (£323bn) in assets under management by 2020, up from $18.7bn.

With the London fintech scene increasingly described as a hotbed of innovation and advances made by UK robo-advisers becoming more and more sophisticated it is no surprise that the UK regulator stands firmly behind the fostering of development in the UK market. Though it may currently be smaller in size, this powerful combination may well allow the UK to take the lead.

Fintech Week

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