Robo providers moving to hybrid

Robo-advice/fintech/finance/

19 April 2017
| By Malavika |
image
image image
expand image

Leading US robo-advice providers are now introducing “hybrid” automated models and bringing humans into their robo-advice equation, indicating the industry is still some way off from a fully automated financial advice model, according to Adviser Intelligence.

The financial software company’s chief executive, Jacqui Henderson wrote in a blog that the US’ third biggest robo-advice service, Betterment had introduced humans into its advice service for investors with balances over $100,000. Investors would receive phone calls and account monitoring services from certified financial planners. The country’s second largest provider, Schwab had also combined automated advice with human advisers for clients with at least $25,000 to invest.

“The fact is, humans are needed to round out the financial advice process, and increasingly ‘robo-advisers’ are becoming ‘hybrids’ by introducing people to round out their financial planning service,” Henderson wrote.

Robos could not reproduce the quantum mechanics and dynamics of the human brain, which was constantly evolving. This meant outcomes would also keep changing as humans gained knowledge.

“In contrast, ‘robo-advice’ is limited by computer programs that follow predetermined rules and deliver pre-defined outcomes. A ‘robo-adviser’ reduces investing to a formula,” Henderson wrote.

True automated advice could not exist until algorithms could dynamically sequence and imitate human behaviour and decision-making in response to life events, and automated advice could not yet deliver holistic advice.

Henderson acknowledged the role of computers and automation in designing financial modelling and simulations using statistical methodologies to model complex scenarios such as cashflow, debt, asset allocation, economic variables, and gauge client tolerance and capacity for risk.

But she said client goals were central to financial planning strategies to deliver outcomes the client wanted, and algorithms recommending investment asset allocations and products would not fulfil this.

“And here, a human is core to such discussions,” Henderson said, adding robos could not understand feeling and empathy.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

So we are now underwriting criminal scams?...

4 months 3 weeks ago

Glad to see the back of you Steve. You made financial more expensive, not more affordable as you claim, and presided ...

5 months ago

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

7 months ago

Commonwealth Bank has formally dropped to zero advisers following LGT Crestone’s acquisition of its advice arm – some six years on from the Hayne royal commission. ...

3 weeks 4 days ago

The FSCP has issued a written direction to an adviser who charged clients “extraordinary fees” for inappropriate and conflicted advice, as well as encouraged them to swit...

1 week 1 day ago

ASIC has cancelled the AFSL of an advice firm associated with Shield and First Guardian collapses, and permanently banned its responsible manager. ...

2 weeks 4 days ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
92.15 3 y p.a(%)
3