To most people, investing can seem puzzling. The market analysis and financial literacy needed for DIY investing require an advanced understanding. Many simply aren’t confident exploring this subject, creating a clear demand for financial advice.
Traditionally, financial advice has been costly, usually charged annually as a percentage of the investment. Those with larger sums to invest were, therefore, more attractive clients to advisers. Many felt that they were unable to afford financial advice or simply didn’t have large enough investments to benefit from it.
Robo advice based on an algorithm
Emerging in 2008, in the midst of the financial crash, robo advice, with fewer overheads such as salaries, was available at a lower cost than traditional advice. Its ability to cut costs has contributed hugely to its success.
Robo advice customers typically begin by completing a questionnaire. Users will answer a set of questions to calculate their tolerance to risk before an algorithm assesses where their cash is best invested.
Advice with empathy
Ultimately, robo advice isn’t a substitute for a human adviser. Face to face advisers take the time to understand their clients, recognising their goals, attitude to risk and personal circumstances. Often, financial aims are intrinsically emotive, involving plans to support the next generation, leave a legacy or achieve a particular lifestyle. A preset group of questions simply can’t provide the understanding of an individual’s circumstances in the same way that a face to face conversation can.
Over the lifetime of an investment, there may be periods of market difficulty or financial strain. A human adviser can provide support or adapt investment portfolios where necessary. Robo-advice is less able to realise and adapt to changing circumstances. Where a human touch is required, robo advisers are bound to fall short.
Robo advisers often provide a more affordable means of meeting the demand for advice, but simply aren’t equivalent to traditional advice. To truly bridge the advice gap, affordable, human advice is required.
How is LowerMyCharges closing the advice gap?
LowerMyCharges provide low-cost advice, delivered by human advisers. Our advice is delivered over the internet, allowing us to deliver our service at a reasonable cost – just £27.50 per month. Find out more about our advice or book a discovery call.