Image Image Image Image Image Image Image Image Image Image

Peer2Peer Finance News | October 20, 2018

Scroll to top


The rules of robo-advice

The rules of robo-advice

Keith Maner (pictured), compliance and technical manager at compliance specialists Thistle Initiatives, sheds light on the regulatory issues surrounding robo-advice

ROBO-ADVICE is the name given to the service provided by online wealth management companies that use automated algorithms to allocate assets into portfolios, based on questionnaires that take into account an individual’s risk appetite, among other things.

As robo-advising grows in popularity among users, a number of firms of this type recently launched in the UK that investors and banks should keep an eye on.

Nutmeg was the first firm to move to robo-advising in the UK in 2011, although the firm prefers to call itself an ‘online wealth manager’ and has taken the largest market share, recently revealing it had 20,000 customers and £600m in assets under management (AUM).

Who are the newest robo-adviser entrants to the UK market? We have identified four recent start-ups that investors should watch out for in the coming years.

Wealthify – Launched in April 2016, the firm has 2,000 customers. It invests in a range of assets and ETFs. It recently reached £1m in AUM and is backed by finance from the Welsh government.

Scalable Capital – The firm recently reached over £300m in AUM and has more than 10,000 clients. The firm’s model is slightly different from those of other robo-advisers in that it does not divide portfolios into low, medium and high risk. Instead, it asks clients to identify the percentage that they would be willing to risk in the most adverse financial conditions. It then uses automated algorithms to manage the risk of portfolios on a daily basis so none would dip over the projected risk percentage.

MoneyBox – This start-up is aimed at the younger crowd and passive investors, and markets itself as the app that “invests your spare change”. It works by linking to a bank account, rounding up everyday purchases to the nearest pound and investing the change. It has three portfolios to choose
from, with tracker funds available through BlackRock, Vanguard and Henderson.

Munnypot (an Appointed Representative of our group company, Resolution Compliance) – Clients can look at different scenarios to determine the best investment for them. The service offers five Vanguard trackers.

Key Financial Conduct Authority authorisation points to be aware of:

Robo-advice is an emerging model across the globe but risks and concerns have been identified by regulators and the industry alike. In particular, concerns exist that the automation of financial advice beyond simple financial planning tools may give rise to new or increased risks compared to the traditional model of human professional advice.

Some commentators warn that consumers may misunderstand the advice or the nature of the service provided to them without the benefit of a professional adviser to support them through an advice process, or may not understand the limitations in using the automated tools when compared against personal human advice, particularly in more complex product areas.

Another perceived risk is the potential for limitations or errors in automated tools to the extent that they cannot be as intuitive as a human adviser. For example, many automated advice tools are based on decision trees and are not traditional investment advice in the sense that they do not take into account the customer’s objectives and goals and how their circumstances may
change over time.

Some see this as having the potential to lead to a risk of automated mis-selling of products and it may take years to identify bad advice provided through these tools.

To sum up, we see robo-advice providers as potentially significant players in the UK advice market, especially if banks come calling to snap them up. With that success comes the inevitable regulatory
risk, however.

For more information on Thistle Initiatives, go to