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Has the Rise of the Robo-Advisors in Online Investing Been Exaggerated?

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The rise of the robots, the kind that isn’t really a robot but an automated financial advisory service, has been regularly in the news recently. Robo-advisors are an online process that profiles retail investors by personal financial circumstances and attitude towards investing, in much the same way as a traditional human IFA would do, but without the sky-high charges. Robo-advisor brands such as Nutmeg have also been a common sight around London and other big cities in the UK over the past few years and Aviva recently acquired robo-advisor start-up Wealthify.

However, a recent study suggests that the actual client capital under the management of robo-advisor companies is far less significant than the level of media coverage they have attracted. In the grand scheme of things, it looks as though the robots are still relative small-fry and it will be some time before they can start to seriously consider world domination. Boring Money, the personal finance site set up by Platforum founder Holly Mackay to translate key investment and finance knowledge into a language accessible to everyone, took a look at where Brits are investing online in 2017.

Boring Money’s research found that over the course of 2017 so, assets invested online by the UK’s retail investors have totalled £192.4 billion. That’s a 17% increase on 2016 and suggests that we are, as a nation, both investing more for the future and investing more online. However, most of us are still sticking to the tried and trusted industry names and routes, even if they are more expensive than tech-focused upstarts like robo-advisors.

Hargreaves Lansdown, a FTSE 100-listed company and the UK’s biggest online investment platform by market share grew its assets under management by 21%, with its market share also reaching 43%. Hargreaves Lansdown is often criticised for being on the expensive side but it appears that doesn’t put off most investors. HL clients appear to be attracted by the company’s solid reputation and rich resource of content, market analysis, educational materials and slick platform, which it seems they are prepared to pay that little bit more for.

The market consolidation which has resulted in Interactive Investor’s 2016 acquisition of TD Direct Investing has seen II become the second largest online retail investment platform with 10% market share.

Another development has been the increase of average account value, which is now above £50,000. Boring Money believes this is mainly the result of investors consolidating different accounts over the past couple of years. Regulation making transferring investment accounts easier as well as fixed-fee charge models making it financially more attractive are thought to be the main drivers of the consolidation trend.

The big surprise, however, was that despite being the fastest growing market segment in online investing, with 133% growth on 2016, robo-advisors still only have a 1% market share of assets under management. This suggests that despite all of the evidence suggesting that portfolios put together by robo-advisors perform well in comparison to actively-managed alternatives, and are far cheaper when it comes to fees, there is still some reticence in the British public when it comes to investing their hard-earned cash with these newcomers to the market. Whether it is the feeling of safety that a big name brings or a wider lack of trust in the automated process, 2017 hasn’t been the year the robots have started their conquest of the online investment space. Maybe 2018….

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Paul

The author Paul