While robo-advice and robo-investing have been buzzwords in personal finance and online investment for a few years now, it seems as though the fintech challenger to traditional fund management models has just gone mainstream. Aviva, one of the UK’s biggest financial institutions has recently bought a majority stake in Wealthify, the Wales-based start-up that has quickly emerged as the main challenger to Nutmeg, the UK’s biggest robo-advisor brand. While the acquisition is still subject to regulatory approval before being rubber stamped this is considered to be a formality and both companies have already announced statements confirming the deal.
Aviva plan to add Wealthify to its MyAviva digital hub alongside a suite of other online products and services. The insurance, pensions and investments giant has been investing significantly into fintech recently, even increasingly referring to itself as a fintech company. While Wealthify marks Aviva’s first majority acquisition of a fintech start-up, the company has also recently invested in a number of start-ups, including ‘insurtech’ company Neos and Cocoon and Roost, both startups in the smart homes space. A partnership with start-up accelerator Founders Factory has also been established as Aviva positions itself strategically within the fintech space.
Robo-advisors, or robo-investors as they are also referred to, like Wealthify are not ‘robots’ in the mechanical sense. Rather, robo-investors automate the role of a traditional financial advisor. Via an online platform, an individual is asked a series of questions on their personal financial circumstances, investment aims and tolerance to risk, much like a human financial advisor would do with a new client. Based on the answers provided, the robo-advisor puts together a diversified portfolio of investments that is considered best suited to the particular individual.
Free or affordable investment advice has been a problem in the UK since a change of rules taking effect from January 1st 2013 prevented financial advisors from earning commissions on their clients’ investments. Robo-advisors were developed as a solution to the ‘advice gap’ for the new generation investing online. While investment portfolios are not tailored to each individual personally, they are tailored to reflect the needs of a range of investor categories, one of which almost every retail investor will fall into. Human financial advisors, other than in the case of high net worth clients with significant funds under management, take the same approach.
The most high-profile robo-advisor brand to have emerged is Nutmeg, whose extensive advertising campaigns on public transport, particularly in London, many readers will be familiar with. Wealthify offers a similar service but has a lower barrier to entry and a portfolio can be started and added to in incremental payments of as low as £1 at a time. Fractional ownership facilitated by Wealthify means that an account with £1 in it has the same diversification as one with £100,000, if invested in the same portfolio.
Wealthify’s management team are hoping that the Aviva investment will mean they are able to now seriously compete with competitors such as Nutmeg. Co-founder and chief executive Richard Theo commented:
“This significant investment in the emerging ‘robo’ market, by one of the world’s largest and most recognised financial services brands, is validation of the vision we set out to achieve three years ago to change investing for the better.
Aviva’s investment and access to their millions of UK customers gives us confidence that we can become the leader in this market in the UK and beyond.”
As recently as early 2016, which is incidentally when Wealthify was launched, John Lawson, Aviva’s head of retirement solutions policy, commented to Citywire, a financial news and media group:
“I think the seeds of real robo-advice are beginning to appear. IBM has a tool called Watson and I think that is the seeds of artificial intelligence. If that could swallow the knowledge the advisers have and then the soft skills the advisers have, that might help you get to that real robo-advice. But that’s a long way off”.
It seems like Aviva, and other financial institutions, are now waking up to the real potential many fintech start-ups hold in terms of both improving the service provided to clients and, ultimately, their own bottom line.
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