If a firm categorises itself as a robo-adviser, we believe the firm should give personal financial advice. That is, if a firm that identifies itself as a robo-adviser cannot give personal financial advice, then our view is that it cannot be termed a robo-adviser.
Let’s discuss this in more detail. Let’s start with understanding about what type of firms can be called as robo-advice firms. What we have written below about this topic is as per our view.
Firstly, note that not all firms that sell investment portfolios online can be called as robo advisers.
A robo advice firm provides personal financial advice or personal investment advice. They typically also manage your wealth through a managed discretionary account structure or separately managed account structure or individually managed account structure, or through a managed account.
Firms that do not provide personal financial advice online cannot be called as robo-advisers, even if they sell investment portfolios or funds online.
The activity of providing personal financial advice is highly regulated by the regulatory authorities, and a firm that provides personal financial advice should get the necessary licences. So, in effect, every business-to-consumer (B2C) robo-advice firm should have the necessary licences to provide personal financial advice. If a firm that serves retail clients does not have necessary licences, then it should not be called as a robo-advice firm.
For example, our firm QuietGrowth provides personal financial advice to retail clients through online web interfaces and mobile apps. So, our firm can be termed as a robo-advice firm. We also manage the wealth of our clients through the managed discretionary account structure.
Then, what about the fintech firms that provide other aspects of financial advice, other than investment advice, for example, answering the query “which credit card is best for me”? Can we term them also as robo-advice firms?
Well, it is true that there are many firms that are automating the various aspects of providing personalised financial advice, such as:
- which credit card is best for me?
- which bank account is best for me?
- which credit card loan should I repay first, among the three credit card loans that I have?
Various firms in different parts of the world that provide such online tools or features are identifying themselves as robo-advice firms, and are marketing themselves as such. As these firms are not providing personalised investment advice, there is an ambiguity whether such firms should also be called as robo-advice firms. We opine that if these firms do not provide ‘personal financial advice’, which is a regulated activity that requires a licence, then they should not be termed as robo-advisers. Note that personal financial advice might include investment advice or not.
Refer to our Robo advice for your wealth management page for more information.
- Should a firm that does not offer ‘personal financial advice’ be called a robo advisor?
- What is the difference between robo advice, digital advice, and automated advice?
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