Robo advice is at a tipping point, according to one researcher, and only the ones seriously willing to change will survive.
In a new report from MyPrivateBanking Research, robo advisors need further refinement if they want to succeed in the long-term. While the Swiss research firm said it found plenty examples of good practice, none have come close yet to providing an “end-to-end consistent level of excellence.”
“We see that most robo advisors are good at some features, but at the same time missing out completely on other important ones,” said Francis Groves, senior analyst of MyPrivateBanking Research. “While this was tolerated by clients at the start of the robo advisor breakthrough, they now demand a top-performance throughout the full process, from comprehensively explaining the services to superior portfolio reporting.”
In a ranking of 30 robo advisors from 15 countries, Schwab Intelligent Portfolios scored the most points (43 out of a possible 60) for exhibiting strengths in areas of product, process information, client assessment and user experience. The report also named Indexa Capital in Spain as performing well in all areas assessed, and Nutmeg in the U.K. for being one of the top three providers of investment knowledge and education.
Still, the top robo advisor scoring only a 72 percent isn’t good, and more than a third of the robo advisors evaluated scored less than half of the possible points. The evaluation examined 43 different criteria, assessed overall performance and evaluated the robo advisors’ websites, mobile apps and social media channels.
One particular area of weakness is the onboarding process, which MyPrivateBanking said too often exhibited gaps that prevent a steady stream of new clients. Even the best players leave out at least one essential component. For example, the robo advisors provide either good information about the product or good educational content, but never both.
Another problem with the onboarding is client assessment. Half of robo advisors explain the purpose of the questions on their questionnaire, and only 53 percent include a complete check on the investor’s attitude toward risk.
Robo advisors offered by well-established financial institutions have their own set of problems, primarily because they tend to be just simple websites that aren’t embedded into the firm’s overall digital service offering. MyPrivateBanking concluded that while these bolted-on robos could possibly assist with rapid client onboarding, they do not foster enduring client relationships.
“We foresee the need for leading institutions to be more radical and wholehearted in their automated investment initiatives in the next few years, even if this means starting over again with a second robo advisor to replace their first,” Groves said.
To survive, the firm recommended robos aim for transparency, especially when presenting pricing, products and process information. They should also be subjected to more rigorous user experience testing to be sure they not only look good to attract first time investors, but also provide quality content to sustain clients. Finally, MyPrivateBanking said robos will sideline themselves if they don’t include financial plans along with investment portfolios.
“The pioneer years of robo-advisors have come to the end and the market will separate the wheat from the chaff,” Groves added. “Too many automated investment services target the same, growing - but still not sufficient - client segment to nurture all or most of them. Too few of the automated investment services see their platform through the eyes of a first time user, while many are losing sight of the need for sustaining a customer experience that will – ideally – last for years.”