Fidelity International is weighing up the launch of a robo-advice service, in the latest sign that fund supermarkets are feeling the pressure to appeal to a wider range of customers amid increased competition.
The company runs a DIY investment service where customers pick and choose their stocks, as well as a platform for financial advisers. In October it rolled out a digital service in Germany for customers who prefer not to choose their own stocks and is hoping to roll out a similar service in the UK.
Fidelity Wealth Expert, its German service, asks customers a series of online questions and places them in actively managed portfolios according to their risk appetite. It also gives them phone access to help centre staff.
The company is now considering bringing the service to the UK for investors on its Fidelity Personal Investing platform, as well as to financial advisers using Fidelity FundsNetwork.
It comes as platforms are increasingly vying for scale and facing growing competition from high street banks and fintech companies. These rivals are launching low-cost advice services in a bid to lure investment newcomers and tap the growing need for financial advice in the UK.
This week, HSBC launched an online investment app marketed at novice investors in the latest move by a high street bank to re-enter the financial advice market or offer a low-cost investment solution following a mass exodus from the sector after 2011.
HSBC’s My Investment service places customers in risk-appropriate portfolios after asking them a series of online questions. The bank said 82 per cent of the bank’s 2.87m customers with sufficient funds to invest showed “no evidence of having any previous investment experience”.
Royal Bank of Scotland and Santander have also launched robo-advice propositions in recent years. Santander returned to the advice market in 2016 with branch-based financial advice and launched an automated investment service in October. Royal Bank of Scotland launched its own robo service late last year.
Interactive Investor, the second-largest DIY investment platform in the UK and rival to Fidelity, said it was also considering a digital investment service.
The company, which has grown tenfold in the past two years through a series of acquisitions, has typically catered for more sophisticated, highly engaged investors, but said it was aware that there were a “number of customers who are less active”.
Richard Wilson, chief executive, said: “We will end up with an improved tech solution in place, a more personalised service.” He said such propositions would be “a required part” of platforms and said he wanted to have made “visible progress” by the end of 2019.
If launched, Fidelity’s new service could involve the company applying to the UK regulator to offer regulated financial advice, which carries a higher regulatory burden than less personalised investment “guidance” which many firms offer.
Noting that its German service offers regulated financial advice, the company said: “If we were to decide to simply follow a similar model [in the UK], then we would, of course, obtain all the relevant regulatory permission.”
Whether or not robo services constitute advice has been a contentious topic. The Financial Conduct Authority stipulates that full financial advice must be truly personalised, involving an assessment of customers’ financial position and goals.
But in May the Financial Conduct Authority criticised a host of online wealth managers for falling short of that mark.
Analysts say investment platforms and banks could pose serious competition to the small fintech companies that introduced robo advice to the UK but have struggled to turn a profit due to the small sizes of customers’ portfolios. In its most recent financial year Nutmeg — the UK’s largest robo-adviser — suffered a loss of £12.4m.
Paul McGinnis, analyst at Shore Capital, said: “Robo would seem a natural extension for a bank wanting to dip its toe back in the ‘advice’ water.”
“The issue with all the robo models is getting sufficient scale of low-value advice gap balances — around £20,000 — to make it pay,” he said. “Unlike start-up robo-companies, at least banks have a client base to offer it to, so may stand more chance of achieving credible scale.”
Martin Stead, Nutmeg chief executive, said new entrants to the market were beneficial in raising awareness and increasing choice for customers, but was sceptical about the ability of some older, larger companies to create successful new online investment brands.
“Companies who are trying to adapt older, legacy systems as a ‘bolt on’ may not fare so well. We’ve already seen the likes of UBS SmartWealth withdraw from the market as their proposition didn’t gain traction,” he said.