CFA Institute Survey Indicates Substantial Impact of Robo-Advisers on Investment Management

Investment professionals concerned with flaws in automated advice, mis-selling of financial advice, and data protection

London, United Kingdom 06 May 2016

Of the growing number of fintech innovations, robo-advisers will have the greatest impact on the financial services industry in the short- (one year) and medium-term (five years), according to a member survey by CFA Institute, the global association of investment professionals. An overwhelming majority of respondents, 70 per cent, consider that mass affluent investors will be positively affected by automated financial advice tools in the form of reduced costs, improved access to advice, and improved product choices.

The Fintech Survey, which measured the opinions of CFA Institute members globally, found it unlikely that automated financial tools will replace engagement with human advisors for institutional investors and ultra-high net worth individuals. The implication is that the tailored nature of financial advice to these market segments is not as easily amenable to standardized automation tools typically provided by robo-advisers. These groups of investors, with large portfolios and potentially diverse and complex investment needs, are likely to continue to favour personalised, human advice.

Respondents are most divided about the impact of financial advice tools on market fraud/mis-selling and on the quality of service, with a roughly even split between respondents who believe that the growing prevalence of financial advice tools will exacerbate or diminish market fraud and mis-selling. However, investment professionals made it clear that flaws in automated financial advice algorithms could be the biggest risk introduced by robo-advisers (46 percent of respondents, a plurality), followed by mis-selling (30 percent) and data protection concerns (12 percent).

Additionally, the survey addressed the impact of blockchain technology, the distributed ledger that underpins virtual currencies, and which is being explored by financial services firms. The survey revealed that members thought that clearing and settlement, alternative currencies, and commercial banking are the top three areas which will likely be impacted the most by blockchain technology.

Commenting on the survey, Svi Rosov, CFA, analyst at CFA Institute, said: “FinTech is attracting increasing attention from consumers, investors, the investment management industry and regulators across the globe. Our survey confirms the intuition that rapid technological innovation has the potential to shape and even disrupt the asset management industry, but also reveals that investment professionals are not yet convinced that investors will be made unambiguously better-off.”

About the Study

The Joint Committee of the European Supervisory Authorities (European Banking Authority, European Insurance and Occupational Pensions Authority, and European Securities and Markets Authority) requested comments on a Discussion Paper on the topic of automation in financial advice. The ambition of this consultation was to provide input into the debate on whether the three ESAs need to adopt measures, if any, in order to promote ‘the safety and soundness of markets and convergence in regulatory practice’.

In order to inform the policy debate, CFA Institute conducted this global member survey using our Capital Markets opt-in survey panel. The survey was sent to members on the 5th of February 2016 and closed on the19th of February 2016. 3,803 members were invited to participate in the survey and 775 valid responses were received for a response rate of 20% and a margin of error of ±3.2.Fintech Survey (PDF)

CFA Institute

CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion for ethical behavior in investment markets and a respected source of knowledge in the global financial community. The end goal: to create an environment where investors’ interests come first, markets function at their best, and economies grow.

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