Going it alone?

The ‘march of the robots’ has become a cliché of modern life, with few areas left unaffected by it

Robots are taking over everything and, in the last few years, they’ve been making big strides into the world of financial advice. The recent proliferation of do-it-yourself investment platforms and online wealth management services run by so-called ‘robo-advisers’ means it’s never been easier, or cheaper, to be a DIY investor. Yet common sense would suggest that sometimes the sheer complexity of plotting your financial future – not to mention navigating a constantly changing investment environment – makes taking expert advice crucial.

Death of the salesman

The problem for many would-be investors is that financial advice can be expensive. The UK industry was turned on its head in 2012-13 when new rules banning commission-based selling were introduced, requiring advisors to charge customers upfront fees. It was a much-needed reform – allegations of mis-selling in the somewhat murky commissions system had been widespread – but it had the unintended side-effect of opening up an ‘advice gap’. A Bestinvest report that year, entitled The Death of the

Salesman and the Rise of the DIY Investor, predicted that millions of people, unable or unwilling to afford upfront fees for advice, would go it alone on internet-based platforms rather than heading to see a financial advisor.( 1)

As ever with such predictions, the reality is never quite so stark. But it remains the case that many former sources of financial advice – including the main high street banks – have cut back strongly on their face-to-face advisory businesses for all but a few select customers with large pots of cash.

Is it worth paying?

There are plenty of reasons why you might wonder if paying for financial advice is worth it – particularly if you know your way around the internet and regularly use comparison sites when planning, say, your domestic finances. And there are plenty of savings products – cash ISAS are a good example – when you can easily research the best deal possible for your money online (though at current payback rates you may wonder if all the effort is worth it). The trick, of course, is knowing when it’s right to take advice. The problem is exacerbated by the widespread public scepticism about the investment industry and nagging worries about paying excessive hidden fees on investment products.

A Moneyfarm report in April last year – which surveyed 761 savings accounts and ISA holders – found 81 per cent thought financial advice was biased towards generating fees, rather than delivering better investment performance. In fact, high fees caused nearly half of the investors surveyed to opt for a DIY approach instead of paying for financial advice.(

2)

The ‘robo’ trend

Big strides in technology have helped by fuelling the rise of automated investment services – the robo-advisers – where the only cost facing investors may be the management fees of the funds they use. The concept, at its most basic, is simple: you fill out a detailed questionnaire, charting your risk tolerance, time horizon and so on, and a computer algorithm then uses the information to put together an investment portfolio. In more sophisticated versions of the model, the portfolio itself is created by humans. That’s the approach we take at Moneyfarm.

Even so, there are limitations to what can be achieved through the use of algorithms and ‘generic’ risk profiles alone. When financial planning gets more complicated, and there’s a need to find the right, balanced strategy on which to base your long-term financial future, most investors would prefer some human input too. After all, ascertaining the precise level of risk you can take with your money is one of the most vital aspects of the investing process.

Finding the right balance

Clearly, the ideal solution is to find a balance between these two scenarios: a blended model that combines robo-efficiency (and transparent, low fees) with the human touch. That’s the equation we pride ourselves on getting right at Moneyfarm, where our experts are on hand to talk through complex questions around your risk profile and investment goals, and to help you create a portfolio that’s resilient and flexible enough to achieve them. In investment, there are always risks as well as opportunities. Hence the crucial importance of maintaining a globally diverse portfolio with different asset classes – a mixture of equities, bonds, cash and, perhaps, commodities and property – spread across different geographies.

By balancing out your portfolio in this way, you hedge your risk: if one asset class starts heading southwards, another may start picking up, thereby smoothing your returns. If you’re bent on heading down the strictly DIY route, you’ll need to ask yourself some searching questions. Do you really have the time, self-discipline and investment confidence to keep a constant eye on your interests, particularly when markets move downwards, as they invariably do from time to time?

When it comes to our financial affairs, we are fortunate to live in an age of choice. The rise of low-cost online platforms has helped ‘democratise’ investment. But there is room for a middle way – a strategy that is part self-directed and part professionally guided. Visit us at Moneyfarm.com and see how we can help.