Algorithms aren’t enough: how robo wealth managers can use Open Banking to provide better advice


We’re living through an interesting period in financial services. From the revolution of open banking to the rapid rise of the robo-advisers, rarely has our industry seen so much disruption in such a short space of time.

For wealth managers, much of that innovation has focused on using algorithms to bring down costs and reach new audiences. The 130 (and counting) robo-advisers that have entered the market are a welcome addition, but is their potential being realised?

Underusing the algorithms
The problem isn’t with robo-products themselves – it’s with their scope.

Because the current crop of algorithmic advisers focus on only one aspect of users’ wealth, like their ISA or mortgage, they’re missing out on the opportunity to offer more holistic advice.

Open banking lets wealth managers take a much wider view of their customers’ finances and provide more suitable advice but few, if any, providers have yet to take full advantage of it and the market is due to see a surge of new players who will.

Let me give you an example.

Sarah wants to start investing. She’s been reading some articles online and thinks that a robo-adviser could be a cost-effective way to get started.

She’s not wrong. But what her ISA robo-adviser can’t see is that Sarah also has £5,000 of credit card debt and high-interest loan on her car.

Any human adviser would tell her that paying off her credit cards is a far more effective use of her savings. But with access to a very limited set of information, her robo-adviser can’t make that judgement call.

A better way

As any adviser will tell you, more information equals better advice.

Robo-advisers have the clear potential to offer truly holistic advice, but manual date entries and fact-finds fail are failing to unearth the required information. But by using open banking APIs to legally aggregate a customer’s date, the algorithms could access a much wider data set that includes credit cards, bank accounts and ISAs, and use it to generate suitable, targeted advice – while saving customers from spending hours on fact finding.

Providers could incentivise customers to add more APIs by giving them a reliability score. Adding one bank account would give you a lower score than if you also added your credit cards and ISAs, for example. It’s a smart way to encourage users to help wealth managers provide optimal financial advice.

Ultimately, we as an industry should always be looking for ways to improve the suitability of financial recommendations. Algorithms can go some way to facilitating this conversation – but surely gaining a better understanding of your customers’ date is the real answer, hidden in plain sight.

To find out how we can help your business evolve, get in touch on 0117 280 5155 or email