Robo-advisers will not 'kill off' traditional IFAs

Added 1st November 2016

Robo-advice will not kill off financial advisers but will instead help them cater to less profitable clients, according to chief executive of digital investment manager, Gemma Godfrey.

Robo-advisers will not 'kill off' traditional IFAs

Speaking at BlackRock’s The rise of the digital investor event on Tuesday, Godfrey said contrary to popular belief, robo-advisers such as and Nutmeg are more than “just disruptors” to the investment management industry.

Referring to Betterment, the largest independent robo-adviser platform in US, which recently launched a tool for advisers, Godfrey added that this shows that automated investment services are here to “enable” and collaborate with the advice industry.

“There’s a lot of talk that robo-advisers are here to kill off financial advisers.

“If you look at the US, Betterment has just launched for financial advisers and that comes back to our missions that we’re not just here to disrupt, we’re here to enable and help the industry and collaborate,” she said.

‘Plug in and play’

Godfrey, an ex-Brooks McDonald investment head who launched earlier this year, said its proposition would team up with advisers in the UK using a ‘plug in and play’ model to service lower asset clients.

“Financial advisers have the clients, they have the trust and the relationships.

“What they’re struggling with is to look after smaller customers and when I say smaller, in some cases, it’s clients with £100,000 ($121,885, €111,165).

“What will often happen is that a client will come to them and say ‘I have £5m to manage but I also have a son with £80,000’ and so they end up with the long tail.

“We work on a plug and play model where we go the advisers and say that them they can use us to make loss-making clients into profitable ones,” she explained.

ETF fractional shares

Meanwhile, Shaun Port, chief investment officer at Nutmeg, the UK’s most popular robo-adviser, confirmed that the online investment platform introduced the use of fractional share dealing in exchange traded funds (ETFs) earlier this year.

Traditionally, investors and their advisers have could only buy whole shares in a single-company stock or exchange traded fund (ETF) on platforms, costing a specific monetary amounts, e.g. £43.78 per unit.

Fractional shares allow investors to buy just a fraction of an ETF unit costing as little as one penny, rather than a whole share, so that they can now build risk-weighted asset allocation into accounts worth as little as £100, explained Port.

“Earlier this year, we introduced fractional shares. Rather than having to hold share in an ETF which costs £100, I can hold 1 pence. So at Nutmeg every single client has their own segregated account, you’re not put in a fund, you’re not pooled. You have your own pooled account.

“That mean if you look at client account for £1,000 vs £1m, they can be the same, despite having only a £1000. You give me [Nutmeg] £1 and I can give you back a multi-asset portfolio with 10,000 underlying securities in it,” said Port.

Last week, Nutmeg revealed that that it is preparing to launch a free automated advice service.

The firm’s head of financial advice Lisa Caplin admitted that the robo-adviser will not charge for the advice feature it is in the process of developing, which may involve an automated phone service.

Instead, it may offer extra services alongside advice which customers can pay for.

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About Author

Monira Matin

Senior Reporter

Monira joined International Adviser in March 2016 from Informa Global Markets where she worked as a eurobond reporter for over two years, covering fixed income markets. She has previously held a number of editorial positions covering politics, insurance and technology. Monira has a degree in Journalism and Economics from City University.



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