Simon Bottle - Robo Advice

1. Robo-Advice:Friend or Foe For IFAs?

2. What Is Robo-Advice? The term ‘robo-advice’ has US origins and many of those in the space elsewhere in the world don’t particularly like the term as it can cover variety of services. However the name has stuck and ‘robo-advice’ is the leveraging of technology to provide investors an access point to top quality diversified investment portfolios at as attractive a pricepoint as possible. Customers are typically taken through a series of questions asking for details of their income, disposable cash, tax position and investment goals. Once the answers are analyzed investors receive portfolio suggestions most suitable to their circumstances.

3. Is Robo-Advice A Threat Or An Opportunity For IFAs? • Robo-advice is definitely a threat to IFAs that do not embrace the changes in flight rather than ignoring them. • However the emerging robo-advice reality can be harnessed as a competitive advantage and a revenue generating opportunity. • Blending a robo-advice proposition with a more traditional IFA model can provide the best of both worlds for clients • Investors that would have been commercially unviable and at risk of being orphaned in the advice gap can become clients that arenurtured using a scaablerobo-model generating a new revenue stream and improving client outcomes.

4. Robo Success – IFAs Do This Already! Flexiblity Flesh and blood layer for relationship management User loyalty is incentivized Service responds to clients wants Proven ability to produce investment results Retail investor friendly Clear competitive fees Easy and satisfying to use

5. How Should IFAs Choose The Right Robo Partner? • In the same vein as DFM or Platform provider selection, the choice of a partner to provide both the turnkey technology and the underlying investment management prowess in critical. • Established track record of investment performance, ideally stretching from pre-2008, for the robo portfolios is key. A whizzy front-end is no use if the wealth managers behind the proposition do not have a track record of delivering the goods. There are a number of robo-advisers that are relatively new and unproven. • However a clean and intuitive user interface that can be white-labelled and is responsive to the IFAs needs is of course important. • The chemistry needs to be right with the IFA positioned as a highly valued client rather than ‘one of many’. • The investment strategy of the robo-provider needs to be in harmony with the investment philosophy of the IFA. For example whilst algorithmically built ETF portfolios can be very cheap, IFAs and their investors may prefer the knowledge that a proven team of humans is in charge of asset allocation decisions!

6. Who Are The Robo Target Market? • Those orphaned by the advice gap impacts of fee for service. The regulators are vocal advocates of the robo-advice model for this reason. • The younger and the more tech savvy have been the early adoptors. • Also those highly focused on overall portfolio costs as a significant factor in the achieving of attractive annual returns through the magic of compounding • However it’s not limited to the above and is a bigger market than most think! In a recent survey 75% of retail investors responded that they would happily use a robo-advice service so long as the tools and the investment story stacked up.

7. Conclusions • Using the more mature US market as a guide, the robo-advice model is only going to get bigger and better and the speed of development is likely to be exponential. • There will always be a need for the traditional human IFA model for wealthier investors and also the many and varied areas such as tax and retirement planning we all need. • Partnering with the right provider to blend a robo-advice capability to an existing IFA model can provide the best of both worlds and allow advisers to add a revenue stream from a client-base that would not have been tapped otherwise whilst simultaneously improving the overall client service offering.