How technology is helping to bring investing to the masses

The past 12 months have seen a massive surge in people investing for the first time with robo-advisers, platforms and digital disruptors all vying for their business. But do they work for the ordinary investor?


Robo advisor

Wealth management has traditionally been the preserve of the ultra-rich, but technological innovation is opening up the market. From robo-advisers to trading apps, there are a myriad of solutions promising to democratise investing, but can they provide the same, or better, outcomes than traditional wealth managers? 

Dozens of new names have sprung up in this market, many of them minnows compared to the traditional players. Even Nutmeg, which claims to be the largest digital wealth manager, has just 100,000 customers; compare that to the 4 billion logins to Lloyds Bank’s digital banking services in 2019.

Digital wealth management platforms in particular have done a lot of work to democratise investing. Where once the market was hugely complicated, usually required advice and needed a large capital sum to start, investors can get going online in only a few minutes and with as little as £25 a month. Combine this with the coronavirus pandemic and associated lockdowns, and we’ve seen a huge spike in activity.

Indeed, some argue it is all too easy to “plug and play”. Many stock market novices who began investing last year in lockdown simply googled “trading apps”. Such a search brings up dozens of options, including some unregulated firms with products more akin to gambling than investing such as cryptocurrencies using blockchain; it’s the Wild West of investing.

The impact on investing

The Financial Conduct Authority (FCA) has fears for the new breed of self-directed investors encouraged by the accessibility of investment apps. The FCA says: “Those investing in high-risk, high-return types tend to have a high degree of confidence and claimed knowledge. However, the reality of their behaviours and beliefs around investing indicate that this can be misplaced.” 

For people who lack the confidence in self-directed investment, robo-advisers such as Wealthify, which is backed by Aviva, suggest a model portfolio based on whether the investor describes him or herself as cautious, tentative, confident, ambitious or adventurous. It will then provide ongoing management. The minimum investment is just £1. But do such products work for the ordinary investor? There is increasing evidence that they do.

Over the past three years, my £500 investment has made me £86 more with one provider than another. This sort of difference is material and currently largely impossible to see if you are a retail customer shopping around for a ready-made solution

The financial website Boring Money invested £500 with 15 platforms and robo-advisers in their “medium-risk” portfolios or own-brand multi-asset funds with portfolios that had closest to 60 per cent in equities in the first quarter of 2018. In January 2021, Moneyfarm, Vanguard and Nutmeg were the top performing portfolios net of charges. After fees, the average balance across all robo accounts in 2021 was £552, an increase of 11 per cent over a three-year period. By comparison, over the same period, the FTSE 100 was down 14 per cent.

Holly Mackay, Boring Money chief executive, observes: “As robo-advisers experience continued growth, longer track records are shifting the focus from who has the snappiest app to a more fundamental performance decision.

“Over the past three years, my £500 investment has made me £86 more with one provider than another. This sort of difference is material and currently largely impossible to see if you are a retail customer shopping around for a ready-made solution.”

For investors looking for a more traditional wealth manager, the digital Brewin Portfolio Service allows consumers to access model portfolio solutions from £500.

Others prefer to go it alone: for them the more established players in the self-directed market, such as Hargreaves Lansdown, Interactive Investor and AJ Bell, may provide comfort. At Bristol-based Hargreaves Lansdown, website logins were up 60 per cent and app logins were up more than 150 per cent over the last year, indicative of the lockdown investing mania. 

At Interactive Investor, around 80 per cent of trades were made on its app using a desktop computer or laptop last year compared with around 20 per cent using mobile phones. 

Technology’s impact on savings

In the savings market, there has also been something of a revolution in the past couple of years. Moneyhub has developed open-banking technology to enable consumers to receive an overview of their finances on their device at a modest cost. Disruptors like Raisin and Akoni Hub have made it easier to manage cash savings across a range of banks and building societies.

These cash-management platforms enable savers to access an array of savings accounts, swap accounts to get a better interest rate, change the terms of their access, secure full Financial Services Compensation Scheme protection of £85,000 by spreading money across different banks and accounts, without the hassle of form filling and supplying ID every time a change is made.

Once the application process is done, this enables the platform to search for new terms for the saver who simply decides how much access or notice they want to give; the platform does the rest. 

Kay Ingram, director of public policy at retirement adviser LEBC, explains: “These tools are relatively new but have the power, once widely adopted, to reduce orphan assets which currently account for £15 billion of savings, according to the Treasury, and £20 billion of pension funds estimated by the Association of British Insurers.”

Personal money management apps like LEBC’s Hummingbird use open-banking technology to give the user an overview of their income and spending, investments, savings and borrowing. This includes current and savings accounts, ISAs, pensions and investments, overdrafts, credit cards and mortgages with more than 80 institutions, but have yet to be widely adopted.

Tech has also made its mark at the large insurers. Royal London claims its acquisition of Wealth Wizards, a digital financial advice platform that can automate key parts of the advice process, should ultimately mean advice is more widely available.

While some investors, especially those with big wallets, still prefer the experience and emotional intelligence of a human adviser, technology is proving it can compete and help widen access to money management whether through investing or saving. But as always, doing the research and picking the right service or tool is critical.