"It’s like the relationship between major coffee chains and independent coffee shops: the big brand will move into new territory, undercut local suppliers, and merrily lose money"
Nutmeg, the biggest robo firm in the UK, has started hiring human advisers. If you’re an IFA, it’s tempting to take the news as a vindication or an admission that automated services can’t match up to the real deal.
Tempting, maybe, but wrong: the move represents the next stage of an all-out assault on the industry. Where the average IFA charges £500, Nutmeg is charging £350 for ‘tailored recommendations’ after a free initial consultation. In other words, robo-advice firms are coming for your clients. So how did IFAs get here – and what can they do about it?
Adapt and evolve
The FCA’s May 2018 review of the robo-advice industry seemed like a good moment for IFAs. ‘Automated investment services’ received censure for their failures to provide adequate information about their offerings, and on their inability to properly gauge suitability. It was a harsh rebuke, but one that – judging from anecdotal evidence and conversations with our IFA customers – may have led to some complacency.
Because Nutmeg aren’t the only firm offering ‘hybrid’ services. Robos responded to the FCA’s criticism in exactly the right way: changing their proposition to suit both regulatory stipulations and longer-term business plans. Scalable Capital are providing human financial advice at £200 a pop. Wealthsimple’s advised pension offering has been live since October 2018. They’re selling cut-rate advice because the intention isn’t necessarily to turn a profit – not yet, anyway – but to build assets under management as quickly as possible.
It’s like the relationship between major coffee chains and independent coffee shops: the big brand will move into new territory, undercut local suppliers, and merrily lose money in the process. The long-term point isn’t really to compete, but to have no competition whatsoever.
Robo resistance: how IFAs can fight back
Now, if you’re an IFA, this obviously isn’t ideal. You’re competing with a grow-or-die industry: with firms that are spending vast amounts of money on building their brands, marketing to your customers, and eroding your carefully-built trust advantage.
Before, you could credibly argue that robos were too inexperienced and too variable to offer top-quality financial advice; it’s harder to make that argument with a bespoke digital service that comes with the option to buy top-quality human advice at a discount – without ever visiting an office or speaking to a human being.
But there are ways to fight back, and you can start by taking a leaf out of Nutmeg’s book. That means understanding what your offering is lacking, and what your clients like about your competition – while they’re still your clients. With the advent of the hybrid robo, IFAs have one clear advantage left; their untapped, dormant client books. Prior to the Retail Distribution Review, IFAs could provide advice to a much larger client base. These must be reactivated – before it’s too late. It’s time for IFAs to explore going digital, harnessing the right technology in a bid to remain competitive and service the clients that they used to.
Robos are still in the process of integrating human advisers into their services, so IFAs can turn the ship around. Winning new clients, launching new services, and keeping older customers happy won’t be done overnight. But don’t wait too long before digitising and upgrading your offering. The FCA Review proves that robos can move quickly and decisively in an unfavourable environment. The challenge now is to prove that you can do the same.