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Robots-advisors : the industry will shoot themselves in the foot by offering systematically, says a French specialist

by

Alain Castonguay

1 August 2017 07:00

Louis Alexandre de Froissard | Photo : Alain Castonguay

The financial institutions pose the good gesture by offering systematic access to the robots-advisers ? No, says a specialist of finance in France. The industry will shoot themselves in the foot by doing so. Their performance remains to be seen, » he said.

Louis-Alexandre de Froissard is the founder and managing director of Montaigne Heritage, a management firm heritage in Bordeaux. He was on a visit to Quebec as part of InsurTech Quebec, an event held in the framework of the Week of the digital age, in Quebec in the early April. The Journal of insurance were also there.

Ask the right questions

During his presentation, Mr. de Froissard recalled that the plc can contribute to assist the professional board or the client. However, it should be him to ask the right questions and supply relevant data. «The professional knows what he wants. The customer knows it ? Not necessarily the same. «

In the United States, the growth of the market of the robots-advisers is 100% per year. The first players on the market, such as Betterment and Westmount, were quickly overwhelmed by Vanguard, and soon Schwabb. The new dominant players and have developed algorithms that focus on passive management, a perfect match to the indices through exchange-traded funds (ETFS).

«These models are in evil case,» said Mr. of Froissard. With management fees as at 25 to 35 basis points, sometimes less, the margins are very small. To successfully make a profit sufficient, these systems must manage large amounts of capital, which takes a lot of time to accumulate. «It is even more difficult when one is not a player known «.

According to him, the players prepared «to shoot in the foot» by abandoning active management in favor of algorithms based on ETFS. They diminish the value of the council in acting as well, he says. In a study done in 2016, KPMG found that 36 % of customers, price is the primary motivation cited when the time comes to choose a fund manager.

«This means that for 64% of the customers, people are looking for something other than the price. Not all the clients who want advice for cheap. «

In Europe, despite the distrust of consumers towards the major banking institutions, the interest for the robot-guidance has taken a long time to manifest. M. Froissard mentions the example of Visual Vest Life, a German company that offers both products and active management of the ETFS. «This is the model of the future,» he said.

The environment of the robots-advisers seems to be more attractive for users. The platform is very user-friendly and more easily accessible than the banker’s way.

The fuel that powers the growth of these platforms is their fidelity to the clues. These algorithms are effective to provide good yields at a lower cost, when the markets are on the rise. «We know nothing of their efficiency when a strong stock market correction, since it hasn’t happened since they are in the market,» he recalls.

Reliable models to 90 %

The models are reliable 90% of the time. The occurrences of gamma-ray bursts important, however, are more frequent. All the more that the market is becoming more volatile, he says. In fact, he wonders about the funding requirements demanded of these funds to be managed by robots.

Mr. de Froissard was not opposed to the robot-adviser. His firm will launch the his in October 2017.

«In Europe, three-quarters of the time spent in a meeting by advisors flow directly from the regulatory requirements «, he says.

Managers of heritage do not therefore have the choice of embarking in this market. «But we, at least, we already have assets under management,» he says.

According to him, with $ 5,000 and two to three months before him, a good developer can create a platform that helps establish the risk profile of the investor.

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