Robo-Advisers Having Substantial Impact on Investment Management

Global investment professionals concerned with flaws in automated advice, mis-selling of financial advice, and data protection

Of the growing number of fintech innovations, robo-advisers will have the greatest impact on the financial services industry in the short- (one year) and medium-term (five years), according to a member surveyby CFA Institute, the global association of investment professionals. An overwhelming majority of respondents, 70 per cent, consider that mass affluent investors will be positively affected by automated financial advice tools in the form of reduced costs, improved access to advice, and improved product choices.

The Fintech Survey, which measured the opinions of CFA Institute members globally, found it unlikely that automated financial tools will replace engagement with human advisors for institutional investors and ultra-high net worth individuals. The implication is that the tailored nature of financial advice to these market segments is not as easily amenable to standardized automation tools typically provided by robo-advisers. These groups of investors, with large portfolios and potentially diverse and complex investment needs, are likely to continue to favour personalised, human advice.

Respondents are most divided about the impact of financial advice tools on market fraud/mis-selling and on the quality of service, with a roughly even split between respondents who believe that the growing prevalence of financial advice tools will exacerbate or diminish market fraud and mis-selling. However, investment professionals made it clear that flaws in automated financial advice algorithms could be the biggest risk introduced by robo-advisers (46 percent of respondents, a plurality), followed by mis-selling (30 percent) and data protection concerns (12 percent).

Additionally, the survey addressed the impact of blockchain technology, the distributed ledger that underpins virtual currencies, and which is being explored by financial services firms. The survey revealed that members thought that clearing and settlement, alternative currencies, and commercial banking are the top three areas which will likely be impacted the most by blockchain technology.

Commenting on the survey, Svi Rosov, CFA, analyst at CFA Institute, said: “FinTech is attracting increasing attention from consumers, investors, the investment management industry and regulators across the globe. Our survey confirms the intuition that rapid technological innovation has the potential to shape and even disrupt the asset management industry, but also reveals that investment professionals are not yet convinced that investors will be made unambiguously better-off.”