The case for robo-advisers, HSBC report

by Kelly Gregor23 Jan 2018
Robo-advisers are one of the most exciting new technologies in financial services, banking giant HSBC said in its Trust in Technology report released yesterday.  

Last year, the Financial Markets Authority (FMA) used its powers under the Financial Advisers Act (FAA) to grant financial advisers and institutions an exemption to use robo-advice (digital advice). Under the FMA’s requirements, individuals and institutions need to apply for a licence from the regulator to be able to rely on giving advice from a non-human.

HSBC said the service was being hailed as a way to offer financial advice to a broad audience – delivered at their convenience via the web.

The bank ran a survey as part of its Trust in Technology report to establish the level of trust in robo-advisers at this “early point in their development”.

Overall 19% would trust a robo-adviser to help make choices around investments, rising to 38% in India, and 44% in China. Bit, just half of people would be unlikely or very unlikely to trust a robo-advisers that makes recommendations based on AI algorithms.

In France, only 9% would be likely to trust an AI robo-advisers, and just 6% in Germany.

HSBC global head of wealth management Charlie Nunn said: “There is an advice gap in financial services. Unless you have a certain amount to invest, asking a professional adviser doesn’t make sense, and this is where a robo-adviser can really help a big chunk of society.

“Robo-advisers can help review an investment strategy on an ongoing basis. Life changes, things happen, and we can give customers nudges to suggest they should look again at their investment strategy. Gain like this are why we are so excited by robo-advisers,” Nunn said.

HSBC has highlighted seven key benefits robo-advisers bring to financial services, and benefits that need to be communicated to users to promote the advantages.

1. Harness the wisdom of multiple experts: speak to a human, and you reap the knowledge of a single person. If you’re lucky, you might get an industry expert. If you’re unlucky, you might get a novice who is still mastering his skills. This isn’t the case with robo-advice as it ca be programmed by not one expert but by a committee of experts each contributing their specialist knowledge. The advice can then be inspected, reviewed and tested to ensure the users receive the highest possible quality of advice.

2. Low Cost: A major factor in the rise of robo-advice is the cost, which often under-cuts human consultancy fees. Cheaper operating costs means savings for users. It also makes financial advice available to a cohort of young and lower-income consumers who were previously prices out of the market – or not in the position to invest.

3. Friendly user-experience: The case for robo-advisers is that they are accessible from any PC or mobile device. This makes them convenient for people who live in remote areas or who work outside of traditional business hours. The user experience can be refined over time, learning and improving from feedback and bad customer interactions.

4. Frequent upgrades: Human consultants need to work hard to ensure their knowledge remains current. For robo-advisers, constant improvement, and near unlimited, accurate memory is a way of life. Programmers can add new functions at will, with new legislation and new products easily integrated. And the robo-adviser nevers forgets new material or relapses back to obsolete advice.

5. Real time information: A robo-adviser can be plugged into market data to match advice to market changes. For examples, mortgage deals change frequently with new interest rates, fees and time periods. A robo-adviser is purpose built to examine the full range of market options, and adapt advice in real time.

6. Rebalancing: Investing is an ongoing process – changes must be made to asset allocation as time passes. Robo-advisers are formidable at this role, they can track portfolio values, identity potential changes, and implement whatever strategy they are programmed to follow. Ongoing portfolio rebalancing is now seen as a major strength of robo-advisers.

7. Works together with humans: Robo–advisers can take the simpler and more onerous duties that humans don’t want to do, which liberates their human counterparts to focus on specialist activities.

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