GO ROBO!

Robo-person-300x300

The robots are here! But not in the Terminator sense. Think, rather, of Asimov’s creations. Or, for the less nerdy, Rosie from The Jetsons: benevolent machines, doing our hard work but better, faster and more reliably. Across almost all sectors, automation and digitisation are transforming daily lives.

The world of investment is no exception. Robo-investing and robo-advice are on the verge of a major breakthrough in the UK. Consulting firm A. T. Kearney estimates the rapidly-expanding sector is set to grow 68 per cent annually, and could be worth $2.2 trillion globally by 2020.

‘Robo’ here is a loose, catch-all term for removing humans from various parts of the investment process and replacing them with automation, algorithms and slick digital platforms. While this can mean a lot of different things, there is every reason to welcome the concept, not as a fad, but as a viable, mainstream investing channel for everyone.

Why? Because the vast majority of ordinary people are priced out of traditional wealth management services – a typical IFA, for instance, won’t sit down with a client with less than £20k to invest. Meanwhile the average saver’s cash is rotting away in high street accounts with record low interest rates.

In short, there’s a desperate need to make investing easy and convenient, to help ordinary people to shore up their financial future. And with a quarter of Britons having less than £3,000 saved (according to data from Wealthify) the solution must also be low cost and affordable for the masses. Robo-investing, with its far cheaper operating models holds great promise as a way to achieve this overdue democratisation of finance.

In any case, when it comes to managing investments, modern machines are in many respects a lot better than humans.

Being successful in today’s complex financial markets is a matter of processing and analysing tremendous amounts of data as quickly as possible – a task for which computers will always have the upper hand.

Successful investing also requires discipline and consistency; humans are prone to bias, panic and emotional decision-making, all of which can spell disaster for an investment portfolio. It’s precisely why many of today’s top institutional investors are becoming increasingly reliant on algorithms and automation.

Achieving the right balance of human and machine is crucial. Humans still have an important role to play – it will just be different to that of the traditional investment manager. Robots are great at the ‘heavy lifting’ but we’ll always need tech-savvy investing professionals to design, build and tweak the algorithms, and ultimately to keep a watchful, reassuringly human eye on the money.

As Asimov taught us, a robot is only as good as its programming. So, for now at least, investors can welcome their financial robo-assistants with open arms.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions, Retail Distribution Review, risk and tagged , , , , , , . Bookmark the permalink.

4 Responses to GO ROBO!

  1. Gina Miller says:

    Hi Henry – when you look at the facts and figures, a lot of this growth in robo is hot air. What will flourish are hybrid models that utilises technology as an enabler of efficiency, transparency and better customer outcomes. See our research here – https://alanmillerscm.wordpress.com/2016/05/31/the-fintech-folly-why-are-supposedly-smart-financiers-flushing-their-money-down-the-fintech-toilet/

  2. Two points:

    Why only support for investment? Helping people understand how, where and when to spend their savings has a huge effect on their real incomes, and there are very few advisers who help with that (perhaps because it doesn’t make them any money).

    Secondly, financial technology seems to focus on speed and number of transactions together with robust recording and audit trails (hopefully). When it starts looking at *choices* (other than getting in first) then it’s inevitable that any algorithmic system will tend towards making the same choices for everyone in the same kind of position. The feedback inherent in that must reduce outcomes.

  3. henry tapper says:

    Agreed – http://www.pensionplaypen.com helps employers on a number of measures, of which investment is but one

Leave a Reply