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28. September 2017

Scepticism towards digital investment advisors

Why robo-advisors are struggling for acceptance

Yes to online banking, no to robo-advisors. While many bank customers are handling their accounts via online banking, half of them are wary of digital investment advisors. Read more about their mindsets and how digital products need better marketing.

Theory versus reality

In theory, it sounds rather simple. Anybody who wants to invest talks to his financial advisor, who determines how to handle the money in the most lucrative way possible. But this only works until the bank customer is confronted with a robot acting as his financial consigliere. These robots are actually software programs, fed to the gills with current data. Out of a myriad of options, the programs, using sophisticated algorithms, filter out suitable investments for the customer.
Recently, a number of fintechs have developed clever models for digital investment advice and assets management. Now, banks have jumped on the bandwagon and are also developing such services or have integrated them into their portfolio. So far, so good? Well, not quite. 50 percent of all bank customers remain sceptical when it comes to these practical innovations.

Too simple to be true?

On their part, the fintechs have done everything they could to ease bank customers into this brave new world of financial advice. The only information the software needs is age, risk propensity, the amount to be invested and the period of time in which the investment is made. And presto – here are the suggestions for an individual portfolio! If the customers wants a higher return and has a higher risk tolerance, riskier investments are recommended. Accordingly, customers with a healthy fear of losing their money are given safe and solid options by the software.
Maybe the simplicity of it all is what scares people away, maybe people simply do not believe a software program promising high returns. Without the warm and soothing voice of the human advisor, they feel they are at the mercy of a cold, unfeeling and uncaring machine. Even though the basis for the advice cannot be faulted, after all, human advisors are using identical databanks.

Digital helpers in waiting

In reality, the digital advisors are primarily accessing comparatively secure and broadly diversified index funds – the robo-advisor can adapt the portfolio according to market developments by itself, no effort by the customer is required. No matter, Germans are having none of it. According to faz.net, research done by the consulting firm Oliver Wyman has unearthed that the biggest robo-advisors in the US are handling investment volumes of several billion dollars each, while in Germany all providers taken together peak at around € 800 m.
To dispel the doubts of the customers, banks are offering altered versions of the digital tools. Customers can decide how big of a role the human element will play in their dealings. At least superficially the good old financial advisor will decide how investments are adapted to market developments. Of course, behind the scenes the computer makes all the necessary calculations.

No trust without trust?

It seems that some groundwork is still to be done. Even though computers are used to steadily deliver up-to-date figures and services everywhere in the financial sector, it is still important to gain the customers trust. But since exactly the same customers are relying on the internet and digital services in many other areas, this does seem an attainable goal. A goal which human consultants can help to achieve. After all, we all need someone we trust.

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