Profitability pains: Robo-advice market stalls plans over financial fears

Money Marketing asked me to comment on profitability in the robo-advice market in the UK. My view was as follows, with a link to the full article at the end of the post. Would love to know what you think.

Expert View – Altus Consulting innovation head Adam Jones

The UK began by looking to the US for its “robo inspiration”, but the market and regulation are so different that transplanting the same business model is not appropriate. Most offerings have ultimately manifested as online, directly sold discretionary fund managers aimed at higher net-worth clients who had a lot of PR noise but not a lot of traction.

The key gap, however, remains: that of mass-market advice which opened up in the wake of the RDR and offers a rich seam of potential. There are millions of people who have previously not invested outside pensions and employer share schemes, but who need to make more from their money than current interest rates.

Smaller robos have been unwilling to tackle this area as the inherently low margins and high cost of acquisition make profit elusive. In order to succeed, firms will need to be servicing hundreds of thousands of customers, with a focus on smaller, regular contributions, robust automation and straight-through processing. They will also need an incredibly strong brand presence and a very long list of potential customers to market to.

This takes the opportunity away from start-ups and existing advice businesses, and instead places it squarely with retail banks and non-financial services consumer brands. We are likely to see the smarter robo start-ups realise this and pivot to providing white-labelled or enterprise software solutions through brand partners.

The barrier, as always, is the regulation within which advice needs to be delivered, but once a major brand cracks this with a live offering in the market, the others will follow suit rapidly.


Originally published in Money Marketing


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