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So what exactly is an AI-based financial adviser?

16/04/2018

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Holly has a brief chat with Catherine Flax, CEO of Pefin, a 100% AI-driven financial advice platform.

Catherine Flax is the CEO of US-based Pefin, the world's first AI financial adviser. A New Yorker through and through, she said goodbye to Wall Street, commodities, foreign exchange and emerging markets sales and trading, and stepped over into personal finance, taking the helm at the firm one year ago.

Customers of the platform will plug in banking details, credit card info and debt and answer questions about priorities and goals. A neural network then whirrs into action, adding in external information relevant to that person’s location, demographic details and expenditure such as college fees, tax rates and childcare costs. If an investment plan is appropriate, it’s produced. Initially the platform didn’t have proprietary portfolios but customer demand led to the introduction of these.

With only 25 staff this is 100% AI driven platform. The only human intervention is for technical support, such as help with a transfer or on-boarding.

Pefin is looking outside the US and the firm has recently signed an institutional deal in Holland. Flax tells me that the AI layer didn’t need changing for this – it’s “the layer on top” such as local pension rules and cultural differences which needs re-jigging. Working out the cost of medical care isn’t such a big deal for the Dutch as it is for those in the States, for example.

What about cultural attitudes to dealing with a robot? In Flax’s experience this is more about whether there is a culture of seeking financial advice. If there isn’t then it’s harder to sell a service where there is poor comprehension of the benefits. And that, as always when we’re talking fintech, reminds me that human nature is not changed by any of this stuff.  We’ve been trying to work out how to explain the benefits of financial advice for years. The same challenges typically remain. It’s just some of them can be solved more efficiently, more predictably and a lot more cheaply by AI.

With a subscription fee of just $10 a month (yes, FD of an advisory firm, put that in your financial pipe and smoke it!) and 0.25% for the investment portfolios, this is a fairly compelling proposition for consumers to try. It won’t solve every challenge but Flax reckons it will deal with 90% of people’s needs. Complex affairs and tax labyrinths probably still necessitate a human brain and contacts.

The company launched quietly to consumers in December and has 4,200 signed up today. Post an upcoming capital raise and some public fanfare, it’s hard to imagine it staying at these levels for long.

Catherine will be presenting at our Fin-k Tank event in June. To have a look at the Fin-k Tank agenda or reserve your place, please visit the website.

Meet the Robos

Robo advisers are a relatively new way to invest for people who don’t give a hoot about the minutiae of stock markets, for people who want someone else to do it for them

Robo advisers

Related Questions

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  • My 60 year old mum is not very financially literate and has has no private pension. She has approximately £900k to invest, from which she will need to draw down c.£40k a year for life. She is not very financially literate and would not be able to proactively manage the money herself. Would you favour an Independent Financial Adviser or a Robo Adviser for someone in her position? Thank you!

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    Rita | London | 23/01/2019 | 0

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  • With a SIPP in drawdown would a company like Netwealth whose investment management fees are of the order of .66% of the value of the portfolio, be a better option compared to companies like Hargreaves Lansdown or Investec? What are the relative benefits of Netwealth over the more traditional wealth managers?

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  • Is there a Robo Investor who provides both income and growth for those who are retired? (There must be a large market for this?) It seems to me that at the moment all the Robos focus on long term growth and reinvesting dividends - which is fine if you are younger.

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  • From my retirement I received a lump sum of money and a monthly pension. I have £100,000 that I do not need for the foreseeable future... One of my main concerns with Financial Advisers are their costs... All I want is simply to see this money grow to its potential, sensibly and above inflation... Therefore my next thoughts are Stocks and Shares ISAs... My only concerns here are the current Brexit problems - I saw the FTSE drop this past week. I cannot find any information out there to assist with my decision making if this is certainly a good time to invest... I am aware that I can place £20,000 for this year. Come April 2019 I place another £20,000 and so on until the £100,000 has been utilised. Do I have to place it into the same fund or can I choose another different fund with a different company?... Please can you help to ease some of this burden, which has proved an awful part of my retirement and made me frightened to spend any money.

    Katherine | Derbyshire | 02/01/2019 | 0

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  • I’ve been investing in Nutmeg’s Risk 10 profile for three years which helped my deposit for my house. I am now wondering whether to use Nutmeg again, or should I use LifeStrategy for my £1000 per month? Is there a difference between Vanguard's LifeStrategy option and let’s say a well known robo adviser like Nutmeg? I am still a beginner and would like to keep things simple, but happy to take risk and prepared to leave my investments for a long time.

    Jordan | Surrey | 26/11/2018 | 19

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  • Do you have any recommendations for books that I can buy my 18 year old daughter for Xmas on the subject of pensions and investments so she can start to understand the subjects? She's young I know but I would like to get her started. Many thanks!

    Nicki | Devon | 15/11/2018 | 2

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  • I'm 24 and would like to begin investing. Am I better off using a robo advisor such as Wealthify/Wealthsimple or a fund such as Vanguard LifeStrategy?

    Amanda | Greater London | 06/08/2018 | 7

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  • I am 73 and cautious. There are two areas that your advice would be helpful..what if you just spend thousands on buying the gold standard footsie companies like shell and the rest and keep them for five years and then cash them in ?

    DB | UK | 24/07/2018 | 6

    • Robo Adviser
    • Online Investment Platforms
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    • Pension
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  • Nutmeg require a minimum investment of £5,000. As I have less than £5,000 per annum income I am a bit confused about how much I can put into a pension. I know the government will only gross up a maximum of £2,880 per year but can I put more than this in and forgo the gross up?

    Barbara | Hertfordshire | 10/07/2018 | 1

    • Robo Adviser
    Richard Allum's Response

  • We have a portfolio of ISAs/PEPs worth around £250k, currently invested via Cofunds, managed by Chelsea and Bestinvest. I'm told this is quite an expensive option regarding platform charges. Are there better options?

    John | Berkshire | 08/05/2018 | 6

    • Robo Adviser
    • Online Investment Platforms
    Helena Wardle's Response

  • I use H&L and although they are a bit 'plumy' on the phone I quite like their website and the costs are OK. So I was thinking of H&L for [my son]. I would be telling him to open these two funds and regularly invest and forget about them for 10 years!

    R | Greater London | 29/05/2018 | 1

    • Lifetime ISA
    • Robo Adviser
    • Online Investment Platforms
    • Funds
    Holly Mackay's Response

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