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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

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Related Questions

Got a Question?

  • I'm looking to start investing and I'm torn between Evestor and Vanguard Lifestrategy. The entry requirements are much higher for Vanguard (£500 upfront and £100/month) while Evestor starts at £1. Is there any benefit of stretching my investment to use the Vanguard fund? Also do you know if I miss a monthly payment, will I be charged?

    Charlie | UK | 30/07/2019 | 6

    • Stocks and Shares ISA
    • Robo Adviser
    • Online Investment Platforms
    • GIA
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  • I'm a 30 year old woman earning a reasonable salary with a low cost lifestyle. I have saved almost £8,000 and want to start investing. I like the idea of using a robo-investor like Wealthify, but I'm not sure if it's better to start with a Stocks and Shares ISA instead? Should I go with a Stocks and Shares ISA or a Robo Advisor, or both?

    Kate | London | 29/04/2019 | 6

    • Stocks and Shares ISA
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    Pete Matthew's Response

  • I am a British/Irish citizen living in Malta and have between £5k-£10k to invest for 5 years. Clearly, ISAs are out as there is a requirement to be a UK resident. I am happy to accept a medium level of risk, and would appreciate some info on where to put this to maximise returns.

    Phil | Malta | 25/04/2019 | 4

    • Stocks and Shares ISA
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    Zoë Dagless's Response

  • I am a beginner investor and would like to invest in a "socially responsible" Stocks & Shares ISA. I have looked into the Nutmeg and Wealthify funds. Is there information about any other such providers on your website? And do you have any advice about how to compare the "socially responsible" criteria on the different funds?

    Joy | Glamorgan | 16/04/2019 | 1

    • Stocks and Shares ISA
    • Robo Adviser
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  • I have two separate company pensions from previous employers. For the last 12 years I have not contributed to a pension. I am now 44 and know I need to put money into one. I'm not financially aware and the robo providers sound tempting but, obviously, I want the possibility for the best return at medium risk. Your Q2 2018 results update showed Nutmeg’s Portfolio 10 as returning different figures than the Best Buys page for Nutmeg says. Why are these figures so different? Is Vanguard Lifestrategy 60 a good choice, though they don't have a SIPP.

    Dave | West Yorkshire | 26/03/2019 | 0

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  • For the last 9 months I've drip fed just over £10,000 into a Moneyfarm Investment ISA... it has been a very volatile year as you know. Moneyfarm seem to have done a good job of protecting my capital... however I haven't really made much in the way of gains... If I wanted, would I be able to transfer the whole lot to another platform where the fees are lower? I know you're not allowed to give regulated advice - but I'm uncertain if I should transfer the whole lot in one go, or drip feed.

    Robert | UK | 14/03/2019 | 3

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  • I am in my mid 20s & earning a regular salary. I have decent savings and am toying with the idea of Wahed Invest (I am looking for shariah compliant funds). I am also dabbling with the idea of property. If I have no financial commitments (living at home for next 2 yrs), is it worth using 90% of my savings for a house deposit for buy-to-let purposes? I am thinking this would reduce my loan to value?

    Zara | West Midlands | 12/03/2019 | 0

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  • I have about £100 monthly extra I want to invest, but I am not sure if my ISAs represent good value. I thought I could put the money in a higher risk investment, as it is money I can invest over 5-10 years, and had thought Nutmeg might be a good option as I have little investment experience. Am I right in thinking I can only contribute to one Stocks & Shares ISA at a time in my name? I could just put more money into my existing ISAs. What do you think?

    Colin | Lothian | 11/03/2019 | 0

    • Stocks and Shares ISA
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    Holly Mackay's Response

  • 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!

    Harry | Kent | 11/03/2019 | 1

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  • I am 47 and I would now like to open an investment ISA for growth for at least 10 years. I am tempted by the Vanguard LifeStrategy 80 due to the low fees and strong reputation. I would also consider investing in a couple of other Vanguard funds as well. Would this be advisable or relatively unnecessary, if I'm already investing in the LifeStrategy fund? I have also been looking with interest at Nutmeg, Wealthify, IG and AJ Bell Youinvest. Is there any provider that would stand above the others as most suitable in my circumstances?

    Matt | South Yorkshire | 11/03/2019 | 3

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  • Trying to get a bit more pro-active with my pension. If my money had been in an online managed fund like Nutmeg for example, is it reasonable to assume that as the markets fell last year the funds would have been managed in real(ish) time to limit the damage? If so, is it therefore a no-brainer to transfer my pension to an online managed pension or is it not quite as simple as that?

    David | London | 08/02/2019 | 3

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  • I recently came across your blog and it has been a great introduction to learning about my personal finances. I was wondering if you could recommend any additional resources (websites, books, online help) for beginners and that are tailored to the UK market. I am in my early 20's and I'm looking to further my knowledge of money, and foster a greater relationship with it. In addition to that, I'd like to know your opinions on how the possible outcomes of Brexit will affect the market and potential personal finance investments.

    Rita | London | 23/01/2019 | 0

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    Phoebe Smith's Response

  • 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?

    Steve | Lancashire | 22/01/2019 | 6

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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.

    David | 18/01/2019 | 1

    • Robo Adviser
    Dr Richard Bradley's Response

  • I’m new to investing and in my late 30's. I'm actually stuck in a dilemma whether to invest using DIY platforms like Interactive Investor, A J Bell or Hargreaves Lansdown OR invest using robo advisors like Nutmeg, Moneyfarm or Pensionbee. I have compared the fees and they are not significantly different. Do robo advisers have a better return rate? I can dedicate some time to DIY investing but not a significant amount of time. Please advise. Thank you.

    Victor | Kent | 14/01/2019 | 1

    • Robo Adviser
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    Phoebe Smith's Response

  • 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

    • Private Pension
    • Stocks and Shares ISA
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    Helena Wardle's Response

  • 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 | 9

    • Robo Adviser
    • Online Investment Platforms
    • Funds
    Phoebe Smith's Response

  • 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

    • Robo Adviser
    • Online Investment Platforms
    • Other
    Catherine Morgan's Response

  • 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 | 6

    • Shares
    • Robo Adviser
    • Online Investment Platforms
    Holly Mackay's Response

  • 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
    • Funds
    • Pension
    Holly's Response

  • 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 am looking for a fund for myself (54 yrs old) but also my son (19 yrs old). Is this fund suitable for either of us with an investment strategy of 10 years +.

    | 29/05/2018 | 3

    • Robo Adviser
    • Funds
    Holly Mackay'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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