Despite its low cost and wide availability, more than 50% of advice offered by robo-advisors is being turned down by customers, according to a report from the Financial Conduct Authority (FCA) in November 2019.
And with reports that robo investment services are performing worse than UK tracking funds, there does seem to be concern as the degree of trust placed in robo advisors.
The FCA polled 1,800 people to find out how they felt about robo advice, as well as how financially literate they were, and their level of appetite for financial risk. 58% cited poor robo advice as a reason for rejection, where the advice didn’t match their stated objectives and risk appetite. But even when the robo advice was higher quality, it was still rejected by more than half of the respondents. On top of that, almost a third of respondents had always rejected robo advice.
Analysing the responses further, it was found that the younger the demographic, the more likely respondents would be to accept robo advice, as well as those who had a greater level of trust in large businesses.
Respondents who regularly rejected robo advice were then asked what alternatives they would consider. 72% of them said that they would prefer to consult a financial advisor. While professional advice is more expensive, the advisor’s experience, coupled with financial advisor software from vendors such as Intelliflo, means they can deliver a personalised and holistic approach to their clients’ financial needs.
However, those who were less financially literate and were lower down on the socio-economic scale were generally more wary of accepting advice, whether from an algorithm or from a professional, and were more likely to turn to friends and family for help.
The future of robo advice
The findings have highlighted the obstacles robo advice is facing, and the challenges that need to be overcome to earn people’s trust in the algorithms. A number of robo advisors have folded over the years, reflecting the difficulty of getting any kind of traction, and experiencing losses as a result.
As Christopher Woolard, director of strategy and competition at the FCA highlighted during a speech at an AI ethics conference in July 2019, it seems that the mechanics behind robo advice need to be far more transparent to users, to increase their trust.