Advice, Robo-Advice Or No Advice? That Is The Question

Advice, Robo-Advice Or No Advice? That Is The Question
Underwater by Andy Deitsch. Why?

According to the Financial Conduct Authority, far too many people aren't getting the advice they need and may be losing out, so download the report below to discover how, on average, you could boost your investments by £40,000.

In Its Financial Advice Market Review, The Financial Conduct Authority Concluded Up To 16 Million People Could Be Trapped In A ‘Financial Advice Gap’

The Rise Of Robo-Advice

Robo-advice is steadily growing in popularity.  These online investment advisers are threatening to take massive amounts of business away from traditional financial advisers.

According to Business Insider Intelligence, automated financial adviser apps and services will manage approximately 10 per cent of all global assets under management by 2020.

What Is Robo-Advice?

Robo-advice is an automated investment advice service that uses algorithms to manage and allocate your assets. 

Robo-advice software analyses your current financial status, risk aversion, and monetary goals, and then recommends the best portfolio of stocks available based on that data.  Your portfolio can be managed without the need for a human to ever intervene.

Some robo-advice solutions operate in a standalone manner.  But others are hybrid solutions, combining automated investment with human advice input to create a more balanced approach.

Companies can generally offer robo-advice platforms with much lower fees than traditional human advice, yet still maintain approximately the same return on investment.

This allows these companies to market advice to a much larger segment of the market, such as millennials who might be hesitant to put their trust in traditional advice.

The Financial Conduct Authority supports the development of robo-advice.  It’s set up a department called FCA Innovate.  Its advice unit provides feedback to firms developing automated models to deliver lower cost advice and guidance to consumers. 

Seek Advice And Pocket An Extra £40,000

Research published by the International Longevity Centre has found that people seeking advice from an independent financial adviser were likely to be around £40,000 better off compared to those who took no advice.

Affluent people who received advice increased their liquid assets by around £12,000 and their pension wealth by an additional £31,000, compared to those who didn’t receive advice.

Less wealthy people seeking advice saw an improvement of nearly £40,000, with an extra £14,000 in liquid assets and £26,000 in pension wealth.

Part of the reason for the increases can be explained by the fact that people who sought advice increased the amount they were saving and the amount they invested in equities. 

Given the UK as a whole is pretty poor in putting aside money, it’s a powerful argument in favour of taking advice.  In fact, 90 per cent of the people in the survey were happy with the advice they received, with a clear majority deciding to follow the adviser’s recommendations.

Commenting on the report, Ben Franklin, Head of Economics of Ageing, ILC-UK said:

Our results show that those who take advice are likely to accumulate more financial and pension wealth, supported by increased saving and investing in equity assets, while those in retirement are likely to have more income, particularly at older ages.

Sir Steve Webb, Director of Policy, Royal London said:

This powerful research shows for the first time the very real return to obtaining expert financial advice.  What is most striking is that the proportionate impact is largest for those on more modest incomes.  Financial advice need not be the preserve of the better off but can make a real difference to the quality of life in retirement of people on lower incomes as well.  The evidence shows that when people take advice they are overwhelmingly satisfied and benefit as a result.

"Why I’m A Value Of Advice Convert"

Having written about the financial advice industry for 25 years, Nic Cicutti said:

My first instincts about a Royal London-sponsored report were wrong. Now I urge everyone to read it.

To discover how you might be able to boost the value of your investments by, on average, £40,000, download the full advice report here.

And here's the Financial Conduct Authority's Report entitled Financial Advice Market Review.

Advice Or No Advice?

Unless you’re very experienced in the world of investments, the evidence seems to suggest that seeking advice is likely to make you better off.

This is due in part to the fact that in taking advice, you may not just be focused on the investments in hand, but also on the wider aspects of your finances.  This might often include the taxation implications of your investment decisions, which can produce some significant uplifts to the returns you might otherwise enjoy.

Whether you should either take traditional face-to-face advice from an independent financial adviser, or the more modern robo-advice approach, or a combination of the two, is a matter for debate. 

Traditional advice can be expensive, and the cost of advice has been rising for some time.  We published some thoughts on how to minimise your advice cost nearly four years ago, and the comments made then still hold good today. 

However, it’s not all plain sailing with the more competitively priced robo-advice.  Whilst there’s a lot to be said for these new electronic advice solutions, there are many downsides to consider, discussed in some detail in this advice article.

As with anything to do with financial services, there’s never going to be one size that fits all. 

As the old proverb says: “you pays your money and you takes your choice”.

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