Robo-Advisers Will Put A Lot Of People Out Of Business

Robo-advisers will force many traditional financial planners out of business as clients want lower costs and do not want their advisers focused on picking products, according to Nicholas Round, chartered financial planner and managing director of Treowe Wealth Advisers.

Round said his views had been strengthened when he heard the CEO of U.S.-based robo-adviser Betterment, Jonathan Stein, speak at the annual ETF.com conference in Amsterdam. Stein argued that an algorithm can manage assets more efficiently and consistently than a human being.

“My view didn’t change, but I realised the rate and speed of change is much faster than I had thought,” said Round. “In three or four years’ time, with the exponential rate of growth in technology, in my view, investors will start to get a better deal.”

Round, who has been using ETFs since 2005, and has been an IFA for over 25 years, has evolved his business from picking ETF portfolios for clients to focusing on holistic financial advice, after enlisting the help of a business coach based in California.

“About two years ago I started to get restless, and I knew the model we were operating, where we build portfolios for clients and charge them as a percentage of their assets, was broken,” he said. Round now charges a flat fee.

“We have to bring the costs of financial intermediation down. Like the coal miners [who were made unemployed in the 1980s], this move towards robo-advisers will put a lot of people out of business,” he added. “The future isn’t about how to build a portfolio as artificial intelligence will do that for you. There is a future in supporting, mentoring, counselling, coaching [clients].”

Round also mentioned a “not too dissimilar” approach taken by fellow IFA Stephen Walters, who spoke to his peers at the ETF.com conference in June about how he built his ETF-focused advisory practice. Walters screens a universe of ETFs to find the ones that are suitable for his retail investor clients, and advises them how they can build their own portfolios for a flat fee.

Round complained that the industry is not aligned with investors’ needs, as providers focus on assets under management, whereas the client cares about risk and return. If a client invests £100,000 and it stays the same value or loses money, a fund manager can still make a profit.

“That doesn’t make sense, but it has been that way for a long time,” he said. “But if alien visited this planet and took a look at our industry, they would say: “Hang on a second, there’s only one winner here!””