Whilst we by and large agree with your description, we believe it would benefit from more details.

1. Financial instruments & assets under consideration

Whilst covering the various instruments that may be included in automated financial advices,you may want to include real estate valuation services.
The current financial climate, low rates, coupled with economic difficulties, have pushed investors to diversify their portfolio via real estate investment. Such is the case of several banks and financial advisors network in Italy, for whom Reply was asked to include real estate valuation, as part of the overall portfolio valuation and management. This has been achieved through a wide range of specific questions and market data (inc. central state information on land, occupation and house values), that are fed in an algorithm, determining the real estate estimated value. The value is then validated via interacting with the customer, and fed into the overall portfolio valuation and management.
Similarly, inheritance-planning takes into account some local legislation and particular products that could otherwise be difficult to understand for the majority of customers.

2. Business model & Level of ownership

The nature of the business model chosen by the financial institution will determine the level of control and ownership this institution has over the algorithm used. Indeed some rely on tools supplied by professional financial services institutions, such as Morningstar (as the case with MeDirect in Belgium, or Advize in France for example), whilst other build their own algorithm entirely. Amongst those sub-contracting, the engine and algorithm part of the automated advice, some have a closed product architecture featuring a range that is exclusive to their brand, whilst other have an open product architecture encompassing a wider range

The chosen business model is thus a key driver of benefits & risk for the end user:

• Automated advice relying on specialist financial services providers will offer the benefit of complete adequacy with the regulation in a timely manner, experience experts, rigorous processes and larger test groups – all providing a level of re-assurance as to the robustness of the given advice.
• The “DYI” model offers greater flexibility for the institution to reflect their investment philosophy and features a larger diversity of products and services.
We find that the benefits of automated advice need to be presented in the context of the customer demand.

In Belgium, a study conducted in 2014 by MeDirect showed that over 60% of investors who were seeking a better alternative than traditional savings account for their money, did not know where to start. Today Robo-advisors, thanks to their educative tools, provide scalable learning to help fulfil these needs.

1. The simulation engine: An education opportunity

The fact is, investors market have an appetite for some better understanding of the management of their assets. By letting the customer use the tool directly, the investor has an opportunity to outline different scenario, visualizing practically the impact of their choices on a potential outcome. Following recent years disenchantment with the financial advisor, and the somewhat rising mistrust and rising concerns over transparency, the automated advice tools represent an opportunity for the industry to explain, educate and ultimately, change perceptions.

2. Accessibility is a factor of user experience, design, language as much as delivery and systems

We believe innovation to lie less in algorithms than in giving universal access to these algorithms. It is this accessibility that today helps new business models gain new ground. In particular, strong visualization, education and a more accessible language are key features attracting existing and new investors. Nutmeg is held as best practice in terms of user experience and language accessibility (demystifying portfolio management).
We’d like to point out a couple of benefits we believe could be particularly interesting for banks, and financial institutions more generally.

1. Building the tool: an opportunity to upgrade processes

Building a financial advisor tool presents a unique opportunity for the bank to review their processes as well as introduce new technologies. Beyond that, it forces all parties to become customer focused, to build the interaction around the client needs and thereby ensure that all aspect of financial advice and management are seen and build from the customer eyes. Including regulatory aspects. Therefore the winner is the customer who will benefit from a better, more efficient and transparent interaction with financial advices.

2. Delivering to the rising market need: connected Y generation

Finally, a non-negligible benefit of the robo-advisor is the very fact that it is provided over digital media – which is a growing demand overall but a particular key ‘hygienic’ proposition factor to generation Y. It is thereof not a matter of WHY IF robo-advisors should be built, but rather a matter of HOW such evolution can support the digital transformation needed, and how it must to connect with the customer of the future.

3. Introducing “digital” products
Especially in the securities sector (but not limited to) financial institutions could benefit from building new investment products (or upgrade an existing one) natively integrating some specific automated tools - ex. for collecting customer’s needs, supplying dedicated info-training material, monitoring portfolio evolution, etc.
In this way automated tools are not to be considered merely as instruments to offer advice for buying standard products but are seen as part itself of a new “digital” product.
1. With regards to the risks mentioned, we believe that these risks should be put in perspective: how are they different from the alternative on the market? In fact, risks such as a lack of transparency or the unsuitability of advice are just as much likely to be present via a human channel interaction. As a matter of fact, as with an automated approach, clients are less likely to be influenced in their decision making, and will be denied access to operations for which they are not qualified.

2. With regards to access to the ‘human’ advisor

If the trend of the robo-advisor is well on this way, it is not the only path to the portfolio of investors. For some, the robo-advisor represents the dehumanisation of the contemporary man similar to the giant clock of Charlie Chaplin in Modern Times. There will always remain a part of the market that would rather rely on an individual, or favour personal contact. In that respect, the robo-advisor can become a support tool to the board and the sale, rather than a personal navigation tool for the customer.

Whatever the approach, it seems that the course of the tool is irrefutable. It remains for advisors to make the best use of it, in order to highlight their true added value.
Maurizio Sironi