Wealthy investors back low cost robo advice

By Daniel Lanyon on Friday 28 April 2017

Alternative LendingSavings and Investment

Research from Deloitte shows the market for low cost, automated advice and investment could be very, very large.

More than half of high earners would pay for robo-advice compared with just under one-third on incomes of less than £15,000, according to new research from consultants Deloitte.

While the market for lower cost often automated investing via online portfolios, often called robo advice, is still small compared to the broader wealth management sector, it is growing rapidly with many established financial firms joining start-up disruptors.

Adoption of robo advice is the key to its survivals with many firms as yet unprofitable and spending vast sums on marketing. Now, new research suggests, it seems to be most keenly taken-up among higher earners, particularly among millennials with rising with incomes. 

Deloitte’s research shows over half (51 per cent) of people earning £45,000 to £70,000 would use a robo-adviser for investments, compared with just 30 per cent of those on incomes under £15,000.

Gavin Norwood, insurance partner at Deloitte, said: “There is a significant financial advice gap in the market, where consumers have a need for advice but either can't or won't access it. Robo-advisers are low-cost and will increasingly be seen as a good alternative to face-to-face advice, especially where consumers have less complex needs.

“The need for affordable advice is growing as individuals are increasingly being tasked with managing their own pension pots and, in the context of a relatively low state pension, automated advice can play a key role in generating low-cost options to help. Our research suggests that robo-advice shouldn’t be exclusively aimed at those on lower incomes or that have smaller savings.”

Deloitte’s research shows a significant potential for robo-advice to take off, with 15 million consumers willing to pay for an automated financial advice solution, confirming that in six key financial advice markets1 over a third of consumers would be willing to pay.

Demand is highest amongst millennials, but the research suggests other age brackets could be interested in using robo-advice. Over two-fifths (43 per ent) of 35-44 year old workers with a pension would use robo-advice on pensions, as would one-quarter (24 per cent) for the 45-54 year olds and a fifth (21 per cent) of those aged 55 and above.

Also, 35 per cent of defined contribution pension holders – more than three million people – would be willing to pay for robo-advice to invest their pension pots, with demand highest (45 per cent) among those with the smallest pensions pots, many of whom cannot afford traditional advice.

Norwood believes the strong demand for robo advice could also lead to a broader range of financial services being offered by disruptive firms.

 “To-date robo-advice has focussed on investments, but its potential extends far beyond and the future looks bright as affordable and convenient automated advice users embrace its potential. In five to 10 years, we will probably not use the term ‘robo-advice’ as digital becomes the recognised channel.”

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