Big UK banks are returning to the wealth management business, including for mass-market customers, having withdrawn from it in the wake of the Retail Distribution Review.
The idea behind this approach is that a combination of new technology and established networks can give banks an edge over specialist providers and the chance to serve lower wealth customers who can face an advice gap. Given the requirements to charge customers directly for investment advice and mass market customers’ low willingness and ability to pay for advice, such offerings are likely to include low-cost “robo” advice.
So, can banks make it work?
Yes, but it will require a well thought-out strategy. In our survey and report last year, 40% of respondents (both wealthier clients as well as mass-market ones) said that they would pay for robo investment advice. But, potential customers are also very price-sensitive: two fifths of those willing to pay for robo investment advice would not pay more than £100.
A successful offering would therefore need to be large in scale – which means that banks with a strong existing brand and significant customer base could have an advantage over start-ups. For a sustainable business though, banks will also need to consider carefully all the potential regulatory and conduct risks, including whether they are providing regulated advice, the way they communicate with customers, and the design and oversight of any “robo” algorithms.
If this is of interest, our report 'The next frontier The future of automated financial advice in the UK' goes into greater detail.
Britain’s big banks are usually the targets of market disrupters, rather than the ones doing the disrupting. But with the sector finally on the hunt for new areas of growth after years of restructuring and regulatory issues, companies in the financial advice and wealth management sector are gearing up for a fight.