Better Finance: Robo-advice a champion for European investors

By David Tuckwell on Wednesday 14 June 2017

Savings and Investment

Robo-advice offers a better deal for Europe's investors, Brussels NGO claims

Top European NGO says robo-advice shows great promise for investors. 

Robo-advice could be a life raft for European investors who are getting ripped off by a flawed and corrupted financial system, claims investor advocate group Better Finance.

Investors “pushed” into bad products and “in the dark” decision-making by professionals has meant low returns for investors and a capital drought for European startups, the Brussels-based NGO said in a new report.  

But robo-advice could be a fix as it runs on fees rather than commission, meaning its interests are more aligned with investors’ than human financial advisers, the report said. It is also significantly cheaper and more transparently priced.

“Europeans by and large do not invest in capital markets… [but] Technological developments within the financial sector, such as Robo-Investing, might just turn the situation around,” the report concluded.

“These new players could make a real difference on the actual performance of financial advice, safeguarding the purchasing power of people’s savings rather than obliterating it due to excessive fees.”

Using exchange traded funds has worked favourably for robo-advisers because ETFs have beaten active managers in recent years, the report noted. Robo-advisers offer a great product for investors who do not care if their investment advice is personalised. 

But robo-advice also has weaknesses.

Fees, while more transparent than traditional advisers, could be better explained as many retail investors surveyed do not understand the costs. 

The report also threw out the idea that robots could fully replace humans as robo methods were, by design, reductive and their advice mass produced. 

“There seemed to be little or no taking into account of more complex situations (like varying income needs for example), of tax optimisation, asset/liability management (debt issues), or generational issues, etc. 

“[robo-advice] does not, in our view, fully replace the benefits of more customised advice and face-to-face interviews.”

That many robo-advisers now swapping to a hybrid model gave body to this, the report said.

“It seems that the emerging industry has now caught on, with several players reintroducing a human element to the mix in case clients have questions, specific needs or express a desire for a certain degree of active management with the aim of beating the market.”

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