WHEN the high street banks start embracing something that has been seen as a little bit edgy you know it is starting to enter the mainstream.

So, when Royal Bank of Scotland announced in March that it would be rolling out robo-advice for mortgage applications by the end of the third quarter it was clear that that particular innovation is no longer quite so innovative.

But what is robo-advice and what does it mean for consumers?

While the Royal Bank is looking to use the technology for mortgages, to date robo-advice has focused mainly on the investment market, allowing consumers who either do not want or cannot afford to take financial advice to get some help with choosing where to put their money.

Put simply, websites such as Nutmeg, which is by far the best-known name in the fledgling UK market, present would-be investors with a range of questions designed to ascertain their attitude to risk before directing them to a model portfolio that should suit their needs.

As Jason Hollands, managing director of the Tilney Group, said: “When you step back from the natty term a lot of it is just using modern communication tools, predominantly the internet, to provide a decision tree in many cases to help people arrive at an investment decision.

“There’s a lot of hype about algorithms but they seem to be fairly simple journeys.”

Gavin Norwood, insurance partner at Deloitte, said such services are important because “there is a significant financial-advice gap in the market, where consumers have a need for advice but either can't or won't access it”.

“Robo-advisers are low-cost and will increasingly be seen as a good alternative to face-to-face advice, especially where consumers have less complex needs,” he added.

However, the issue, according to Stephen Martin, head of Brewin Dolphin’s Glasgow office, is that even where needs are uncomplicated, robo-advisers can only go so far because they will never be able to tease out information peculiar to individual situations.

“We describe this as technology-enabled wealth management because robo-advice sounds like you go onto a computer and it does the work for you,” he said.

“I think its technology allowing you to do the heavy lifting but people are very important in the process because they help you deal with issues such as tax.

“Vanguard launched in the US a few years ago and they embedded people into the process - they have a help desk and you can speak to someone so there’s a human part to it.

“They have become four or five times the size of [US robo-advisers] Betterment and Wealthfront put together. That could be for a variety of reasons - it’s a much bigger company with marketing - but I suspect the people have helped.”

Hollands agreed, noting that while robo-advisers are a positive addition because they are helping open the investment marketplace to a wider range of people, they cannot be seen as a like-for-like replacement for full financial advice.

“There is a role for robo-advice but it’s not a panacea,” he said.

“It’s fine for fairly simple processes but it doesn’t compare will full face-to-face human advice because it gives people a fairly limited set of questions.

“If you sit down with a client, they might come through your door and say ‘I want to buy an investment portfolio’ but actually when they’re in the meeting they tell you about their personal circumstances and what keeps them up at night and you might come to the conclusion that they shouldn’t be doing an investment but should be clearing the mortgage or paying off debt.

“There’s not the same level of discovery.”

While the robo-advice market in the UK remains small, covering in the region of £1.5-2 billion of assets, research from Deloitte suggests that with more and more people having to take responsibility for investing their own pensions the potential for growth is high.

The accountancy giant found that 43 per cent of 35 to 44 year olds with a pension would use robo-advice on where to invest it, with those with the smallest pension pots, who may not be able to afford traditional financial advice, most likely to go to a robo-adviser.

The image of a future where all financial advisers have been replaced by robots is far-fetched, though, with Norwood pointing out that worries about security are likely to remain one of the key reasons that will dissuade people from seeking robo-advice.

“The industry needs to communicate the benefits of robo-advice in a simple and engaging way, for example, how robo-advice works in a safe and secure manner, the lower costs and convenience of 24/7 availability,” he said.

“Only then will people become as comfortable with disclosing their financial information to a machine as a human.”

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