So much of the world is automated these days, it was perhaps only a matter of time before the trend reached our finances. There have been a number of recent articles highlighting the rise of computerised retirement planning services, known more simply as “robo-advisers”.
In general, taking humans out cuts costs, and this is indeed the case here. The other reason for the rise of "robo-advisors"? financial companies are using them more to deal with the pension freedoms introduced in the UK last April.
Robot retirement planning
Now, anyone who reaches the age of 55 – usually the earliest point at which pension savings can be accessed – faces a much greater range of options when it comes to turning their pensions into retirement income. Gone are the days when savers’ only decision would be what kind of annuity to buy.
Today, the potential choices include sticking the money in the stock market, withdrawing cash to purchase buy-to-let property, or perhaps even investing in assets such as fine wine or art. But for people with relatively small pension pots, the cost of paying for face-to-face financial advice can be prohibitive – hence the rise of the robots.
So, what do the robots actually do?
In reality, robo-advisers are a simpler online wealth management service: investors fill in details about things like their attitude to risk and other sources of income, and an algorithm works out what is likely to be the best course of action. The service will then pick investments that align to the profile you have chosen. Nutmeg, for example has its own professional investment team that manages a range of portfolios based on an individual’s risk level as it monitors the markets to select stocks to put into each portfolio.
How the robots can help your finances
As you would expect, regulators are keeping a close eye on the robo-advice sector to make sure consumers are aware of the potential risks and are getting a fair deal. But it’s clear there is a gap in the market for this kind of thing. Several similar services have been launched in the UK recently aimed at younger investors who are trying to put together a pension or long-term saving portfolio of shares and funds – these include Fiver a Day, Money on Toast and Simply EQ.
Zopa customers can also benefit from a kind of automation in the form of our Auto Top Up service: this means that any money repaid from borrowers, as well as any money already in your account, is automatically re-lent at the latest tracker rates. You can switch this feature on and off on your dashboard.
Where next for the robo-advisers (and what does it mean for humans)?
There are plenty of other areas of our finances where some form of automation would be welcome: imagine a service which switched your gas and electricity account to the best-value tariff without you having to lift a finger – or one which could counter the common bank strategy of paying “teaser” rates on savings accounts, which last for a few months but then revert to rock-bottom levels of interest.
Until this kind of thing becomes reality, however, it is up to us humans to keep our finances under regular review to make sure our investments are responsibly managed even if they are automatically picked on our behalf.