Robo-advice, digital advice, robo-advisor… these terms are becoming commonplace in the financial services sector. However, many professionals are still not entirely sure about the capabilities and scope of this emerging technology. Here’s a quick rundown, as you can bet you’ll be hearing a lot more about it.

So what is a robo-advisor?

According to Marquit (2020), it is a “is a type of brokerage account that automates the process of investing.”  Robo-advice, or as we prefer to call it, digital advice, is effectively an automated, online financial adviser that helps people invest their money or make other financial decisions. It comes in many different shapes and forms; some digital advice companies offer purely automated advice with no human interaction, others may have some interaction with a traditional financial adviser or portfolio manager, some help you pick which stocks to invest in, others provide financial planning or budgeting tools. They will often run complex algorithms in the background to help you decide how to invest your money, and which investments to make.

The traditional financial advice model can be broken down into various parts, and many (if not all) of those parts can be automated and able to be widely distributed online. This is significantly driving down the cost associated with accessing advice, and in many cases a certain level of advice is provided for free. The other key advantage is that digital advice is generally targeted towards those with smaller amounts of money to invest, and does not require a huge initial investment amount to be able to get started.

 Why should you care?

Digital advice is transforming the traditional financial advice model, and opening the doors for the next generation of investors to access expert financial and investment advice that won’t cost an arm and a leg. Currently, millennial and Gen X investors represent a larger market size, but are further down on the wealth scale than their parents (Winters, 2019). It is estimated that about 76million people with $18trillion sit in this “mass affluent” range today, with an expected 4million people joining the group each year over the next 5 years (Winters, 2019). Using these figures, the average investment balance per mass affluent investor is around $237,000, which comes in substantially lower than the $3,7 million average investment balance of HNWI’s (Ghanem et al, 2020). Digital advice is crucial for financial service providers who are wanting to scale up their businesses to effectively capture these untapped markets and is paving the way for firms to service larger segments in a cost-effective way.

Hybrid or fully digital – what’s best for you?

There are many benefits to be gained through implementing some form of digital advice strategy, and customers are increasingly looking for online advice solutions. Whether you prefer a hybrid model and retain a human element, or a fully automated, digital process, our advice is to implement it in line with measurable returns rather than adopting it for the sake of it. By using return on investment (ROI) to measure the success of digital advice, it makes it much easier for you to track the success of it and gives you a working example to use as a model for future applications.

As confidence in this technology grows, firms are looking for multiple ways to tap into the resource-saving benefits of digital processes.  Digital onboarding can enable a seamless onboarding experience, and is a great way for customers to engage and interact with your brand during that all important first interaction. Other digital tools such as digital advice can serve as important elements to improve customer retention, as intelligent algorithms drive automated advice to keep investors engaged and educated throughout their customer journey.

Digital advice to navigate market volatility going forward

The economic impact of Covid-19 and subsequent market volatility over the past few months has left many people uncertain about their future financial prospects and investments. However there are still huge numbers of investors who don’t have access to an adviser to guide them through challenging market events such as this. Coming out of Covid-19, we’ll see pressure for higher levels of service and support to this group. They’ll turn to financial service providers to help guide them to make better choices in turbulent periods. Digital advice and greater use of intuitive information on websites, such as prompts, will not only provide service efficiencies to businesses, but will also help investors through the decision making process.


Rachel Strevens

Rachel Strevens