One of the defining themes of recent times is the rise of populism in Western Societies, characterised by events such as Brexit and the election of Donald Trump as US President. Initially, commentators struggled to understand the cause, but have since reached a consensus that large swaths of populations felt excluded from the wealth created by globalisation. Leading politicians such as Theresa May have highlighted (in her recent address to the WEF at Davos) how western politicians should not forget those within society where “life remains a struggle as they get by, but don’t necessarily get on”. Acknowledging this exclusion is the first step in enabling societies to become more inclusive.
Keeping this in mind, exclusion can be identified and acknowledged in many verticals of the service industry. In the investment industry, this trait can be seen in traditional approaches to wealth management. Skilled investment advisers command substantial fees to provide investors with effective investment advice. Historically these fees would form part of the Annual Management Charge (AMC) of the investment fund bought by investors. However, in the UK this mechanism was removed by the FCA as part of the Retail Distribution Review (RDR), resulting in investors needing to pay upfront for investment advice. Where investors had only small amounts of capital to invest, this could often exclude them from obtaining the necessary investment advice and ultimately from participating in the investment process. Despite demand for investment advice remaining high across all socio-economic sectors, a two-tier system began to proliferate, where the rich have access to expensive private wealth management services and therefore have the ability to get richer, whilst the poor are excluded from wealth management services altogether and remain as they were.
Apart from the standard functionality, there are two key elements that set ‘Robo-advice’ apart from historical wealth management offerings. Firstly, investors can access the service at very low minimum threshold investment amounts, and secondly, investments carry a very low management fee (charged to run the portfolio). Combine these elements with relatively sophisticated risk profiling and investment goal determination, intuitive customer UX, and Robo-advisers provide a channel that offers investment advice to everyone, regardless of how much money they have and their level of financial knowledge. These platforms go some way to democratising participation in capital markets and can ultimately provide a level playing field for inclusive wealth creation.