The rise of FinTech in recent years has been extraordinary. The global fintech industry attracted almost $39bn in funding in 2017, of which UK fintech companies took an estimated £1.29bn² share.
Fintech is a truly exciting prospect – a myriad of start-up organisations using technology to disrupt and democratise traditional financial services, who at their heart are striving for simpler, clearer and better outcomes for consumers. Fintech has a multitude of sub-categories, one of which is WealthTech: a rapidly-growing market of services offering to manage people’s investments on their behalf for a fraction of the cost of a traditional wealth manager.
In the UK these services have become known as robo-advisors, a label borrowed from the US where it’s typically taken to mean ‘we invest for you’. However, in the minds of many UK retail investors it’s come to be taken more literally as “robots that provide financial advice”.
This ambiguity presents a number of issues for a fledgling industry where trust and confidence are paramount to encourage people to hand over their hard-earned money. Misleading labels combined with low levels of investing knowledge among the general public puts the sector at a disadvantage from the get-go.
For one thing, some ‘robo-advice’ services don’t offer advice at all and among those that do, the level of advice can vary. Few offer the ‘full-fat’ comprehensive version that considers the full range of a client’s needs – as advice is often taken to mean – due to the difficulty of delivering it within a compact online journey and the fact that Artificial Intelligence still comes nowhere close to a human’s ability to make complex, subjective decisions. Often a ‘skimmed’ version is provided that focusses on specific needs and gives simple recommendations. Wealthify’s service falls into the category of Online Discretionary Investment Manager (ODIM) and as such does not offer advice or recommendations, something we clearly disclose to our clients during sign-up. This is quite deliberate and serves a segment of millennials who just want easy access, great value and better returns on their money.
A further misconception is that robots are in full control of investment decisions. The level of automation varies between providers, but in almost all cases humans have some control of investment processes and ‘robo’ simply means the use of digital technology to drive down operating costs that are passed on to the client through low fees.
These nuances around ‘robo’ and ‘advice’ may be well understood in the industry, but do the millions of uninitiated Brits who could benefit from investing really appreciate the difference, and why they should care?
So far, we’ve failed to find a better headline than “robo-advice” under which all of these services can happily co-exist. Wealthify could more accurately be described as a “Digital Investment Manager” but since even this concept is alien to most consumers, we prefer to describe ourselves as “Simple Investing”.
The challenge for the Wealthtech industry is how to label ourselves in a way that conveys what we do in a succinct and, importantly, more accurate way. We must be as effective at simplifying how we explain our services as we are at simplifying how we deliver them.
After all, most of us aren’t ready to fully trust a robot with their money, in the same way we’re not quite ready for driverless cars. We like to know there’s still a human behind the wheel.