Vanguard’s recent launch of an online investment platform for UK mass-market investors at a lower cost than many of its competitors has made quite an impact. Money Marketing (17 May 2017) reported that, as a result of the announcement that Vanguard’s new platform will charge 0.15 per cent on top of underlying ongoing fund charges and will have a minimum monthly contribution of £100 and/or a £500 lump sum, shares in Hargreaves Lansdown fell 8.5 per cent, before recovering somewhat.
There’s been much written about robo-advice and whether it’s a threat or an opportunity for mainstream advisers. With so many advisers already too busy handling existing clients, or new clients with significant wealth, it’s easy to dismiss the likely impact of the growing direct-to-consumers (D2C) investment platforms that primarily target those with small pots to invest.
My own feeling is that there is a threat lurking for advisers, particularly those that offer investment services that are mainly centred around simplistic model portfolios.
Model portfolios are a useful, convenient and effective tool for investment, which is why they are so popular. The problem is that simplified passive versions are exactly what the growing number of D2C platforms are offering too, often at keenly competitive prices.
To attract business, the D2C platforms have to invest heavily in marketing their brands to consumers, and lower fees is a seductive message for any investor. How long will it be before investors currently using an adviser see these messages and start questioning whether they could achieve the same investment results but at a lower cost if they went direct?
The challenge for advisers is two-fold. Most importantly they need to demonstrate they are adding real value through genuine financial planning. But secondly, they need to demonstrate that value is being added through the investment process. Simplified passive model portfolios may fit the general profile of an investor but they are inflexible and cannot be adapted to take into account an individual investor’s overall investment portfolio, leading to the danger of over-exposure in some areas, like property for example.
This is exactly why PortfolioMetrix developed its customised models’ proposition, which enables advisers to add value by accurately adapting the investment portfolio to meet the client’s individual needs. Is this process time-consuming, costly and complex? No, it’s none of those things because PortfolioMetrix specialises in tempering complexity, as any of our existing adviser partners will testify.
Smart advisers are waking up to the real threats of robo-advice and the realisation that it may be the higher net worth consumers who are lured away, going direct unless their adviser can demonstrate they offer something different.