Human vs computer error
I’ve been thinking about this nexus of human and computer a lot recently over in the direct investment space. We have been treated to a couple of interesting developments in the last month, which are worth a wee investigation.
Firstly, Vanguard has announced that it will be launching a direct to consumer (D2C) offering within the next three to six months. This is a sort-of-not-really UK version of the Vanguard Personal Advisor Service from the US. We’re not sure if it will include advice from a human; we expect some kind of algorithmic risk matching that might be called advice.
We expect LifeStrategy to be under the hood. Opinion is split on whether there will be a pension wrapper included – we hear a rumour that it won’t be there at launch. The price is expected to be well under 50bps all in, maybe as little as the cost of the LifeStrategy fund plus 10bps or so.
If that’s true, then an investor in a passive multi-asset fund can get out for, say, 40bps all in. That’s going to hurt direct to consumer shops like Hargreaves Lansdown, but it may also be of interest to advisers. Why would you ask a client to bear a (say) 35bps advised platform fee when they can just hold it direct on Vanguard’s platform? If the answer is ‘facilitation of adviser charges’ then that might be something you want to have a think about.
Vanguard can deliver all this partly because it’s huge in the first place, but also because it’s letting technology (FNZ, in this case) take the load. But that isn’t enough.
Customer costs
In the online world, it isn’t necessarily operating cost or the cost of building tech that hurts – that can be dealt with over time (which is something that folk worried about tech spend from platforms should probably remember). It’s the cost of acquiring customers, each of which gives you just a little bit of revenue. It’s crucial to control your cost per acquisition (CPA).
We can see an example of this at the moment with that bellwether of the robo-advice market, Nutmeg. We like Nutmeg – it’s been around since 2011, it does funny adverts, its user experience is really nice and its new pension proposition, developed with Embark, is straight through and pretty sexy. We don’t like its price much, but then we’re like that.
