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Robo-advice needs industry-wide definition

Robo-advice needs industry-wide definition

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By tlewis ·
February 15 2016

Robo-advice needs industry-wide definition

The arrival of robo-advice has generated significant attention, but in order to fully understand its impact, there needs to be a clear and industry-wide definition of what it is, according to Morningstar.

In a recent article - The Robos Are Here to Stay - Morningstar global head of research Hal Ratner argued that robo-advice does not have an "agreed-upon industry definition".

"The term robo-advice is very general and has been applied to everything from services delivering model-exchange traded fund portfolios to more comprehensive solutions offering advice on savings, taxes, and the use of guaranteed income," Mr Ratner stated.

However, according to Mr Ratner, the most prevalent definition of a robo is one that uses a risk tolerance questionnaire to assign an investor to a quantitatively managed portfolio.

In reference to this robo-advice framework, only certain advisers will be threatened. Mr Ratner said for the advisers who primarily focus on picking investments and relying on third-party allocation-policy portfolios, a robo-tool is disruptive.

However, "for high-net-worth investors with complex financial profiles, the need for advisers to work in a cross-disciplinary fashion with accountants, lawyers, and the like, does not now lend itself to the fully automated robo-model", he stated.

Mr Ratner believes that the robo-advice model will eventually evolve into something more comprehensive.


"Similar to the industry today, it is likely to exist in varying shades of completeness, with higher-touch/lower-services that we currently think of as falling under the robo-rubric."

The article concluded that people are in need of guidance on how to invest and how to plan for their future.

"This is a complex problem, the solving of which technology makes possible and practical. The ability to instantly deliver a holistic recommendation to one's desktop has already begun to change the investing landscape and will profoundly affect investors' attitude and engagement with their financial future."

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