14 June 2017
Reporter: Stephanie Palmer

Robo revolution at risk

Robo advisory services may boost efficiency in portfolio management, but they could be at risk of a crash if they don’t adhere more closely to regulation, according to speakers at Fund Forum International.

Speaking in a session on the future of robo technology, one panellist, Thomas Bloch, co-founder and CFO of digital asset manager Vaamo, suggested that the term ‘robo adviser’ can be “misleading in many instances”, adding that many focus on investment, exchange-traded funds and index funds.

The “core robo element” is more about scaling investment decisions electronically, and removing some of the complexity in investment.

Lars Reiner, founder and CEO of robo adviser Ginmon, added that portfolio optimisation can be improved through automated solutions. He described robo advisers as, primarily, technology companies, and suggested that as such they focus on “making the value chain as efficient as possible”.

However, one speaker was more sceptical of the robo revolution. Paul Resnik, co-founder and director of FinaMetrica, suggested that some robo advisers have very short suitability questionnaires, and do not meet regulatory obligations of properly ensuring assets are right for clients.

The regulation is there “because we had dissatisfied customers”, he said. “We have the regulation we deserve.”

In the robo advisory market, there is likely to be a crash, and investors’ expectations will not be met, leading to what Resnik called “a correction”. When the markets correct, investors will try to get out of “whatever’s liquid”, and whatever they can get out of quickly, which is likely to be their robo advisory investments.

Resnik had one note of positivity, saying this is the “perfect chance for the industry to self-regulate”.

Another speaker, Steffan Binder, co-founder of MyPrivateBanking Research, put himself “pretty much in the optimist camp”, but said that robo advisory models will still need human involvement.

“People need some kind of human interaction with their advisers,” Binder said, suggesting that a hybrid solution “will be the winning model”.

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