Robo-advisers may be out but sustainability is here to stay

The fundamentals of managing your personal wealth – save, don’t borrow to invest, never put in more than you can afford to lose – are pretty much immutable. That’s not to say the sector isn’t subject to trends. While staying in the black is always the new black, attitudes to how to achieve it do change.

One of the biggest trends in recent years was the rise of the robo-adviser.

“It was the big topic, where people went online, filled in their details, did a risk questionnaire and a portfolio was created for them,” explains Daniel Moroney, investment strategist with RBC Brewin Dolphin. “It was low cost and there was no need for a human adviser.”

Except that there was. “Certainly the industry is very keen to harness technology and make the best use of it – but one of the things that came out over the last few years was Covid, where we saw a very swift, sharp downturn and a very swift recovery, and the downside of robo-advisers was highlighted,” says Moroney.

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“What happened was that the ability to dial up and down your risk at the click of a mouse ended up embedding a psychological mistake that investors have made since time immemorial – panic.

“It showed that the thing to do when it comes to wealth management is to set a plan and not panic when markets fall, and not get too carried away and overstretch yourself when markets do well.”

Since those torrid months of 2020, Moroney says, there has been recognition that both technology and flesh-and-blood expertise are required – “that, while the industry is very minded to benefit from technology, as long as human beings are wired the way they are when it comes to seeing the value of their savings going up and down, there will always be a place for a human adviser”.

Being able to pick up the phone and talk to someone with whom you have built a trusted relationship “means you’re far less likely to make the mistake of moving long-term capital around over short-term concerns,” thereby breaking the all-too-human and financially deleterious “cycles of fear and greed”, he adds.

However, a digital trend that has continued to grow is digital assets, including non-fungible tokens (NFTs) and cryptocurrencies. Moroney is not a fan.

“We will not allow our clients to buy NFTs or cryptos through us, which I think makes a clear statement,” he says, pointing to Dogecoin as a case in point.

“It was set up as a parody of Bitcoin and, yet, on it trades. All it needs is people willing to buy it,” he says.

NFTs are perhaps best known in terms of digital art, sometimes created by celebrities and in some cases traded for millions of euro.

“It’s a little bit of a mania, like any of the famous bubbles down through the years. Sometimes it’s amusing but a lot of people will have lost money in relation to [NFTs],” says Moroney.

It’s important to be open minded when it comes to investments, he cautions, “but not so open that your brain falls out”.

Investments in digital assets is something younger investors in particular have got involved in, he points out, “because they are tech savvy and these things can be difficult to buy”.

“But they may be left holding the bag, which is something we have seen with tokens and cryptocurrencies and NFTs,” says Moroney. “In a way, it can be a powerful lesson to a young investor – as long as it doesn’t impact on their lives long term – about the importance of the value underlying the asset.”

The other big trend impacting the sector is the growth in demand for sustainable investment solutions. Increased EU regulation has brought into sharper focus precisely what sustainability means in relation to investments, which will help.

“They have crafted a very clearly defined definition of what sustainable is, the characteristics it needs to have and the operational and regulatory hurdles that need to be cleared in order to call something sustainable,” says Moroney.

“We find that interest in ESG [environmental, social and governance] investing is across the board and not related to any one particular age group. And I don’t think interest in the environment is going away any time soon.”