The D2C platform market has seen remarkable advancements in recent years, driven by regulations, new technology, and AI innovations that allow digital wealth managers (robo-advisers) to improve.

These advancements tend to cater to younger, more tech-savvy individuals looking to start their investment journeys, attracting them before they opt for the traditional advisory route that their parents followed.

Defaqto data shows a rapid expansion in digital wealth management, with mainstream providers getting in on the act. For example, Aviva, owner of Wealthify, also offers a D2C platform and an adviser platform. They clearly view this as the future of the investment environment, and at Defaqto, we’re seeing other firms consulting with us on the best way to enter the D2C market.

High street banks are vying for a share of the market. Lloyds Bank recently launched Ready Made Investments. NatWest/RBS and Coutts are making significant strides in the digital wealth market, earning 5 Star Ratings from Defaqto in 2024. Barclays Smart Investor is another notable challenger from a high street bank. Monzo is also making a strong case with its execution only D2C service and their multi-asset funds from BlackRock's MyMap range. Behind this is FNZ technology, a familiar name to many advisers.

Finally, InvestEngine, a recent entrant, is advancing with a focused ETF proposition, low charges, and user-friendly technology. Despite being new, their offering, is of sufficient quality to receive a Defaqto 5 Star Rating.

Proving value in the age of robo-advisers

Today's technology divides savers and investors into two groups:

• Those who value financial advice and wish to leave decisions and transactions down to their adviser.
• Those who prefer a DIY approach using technology to make decisions and undertake transactions.

Robo-advisers typically focus on a single or handful of outcomes, posing more of a challenge to firms operating a restricted advice model. We expect to see these advice firms having to adjust their costs to remain competitive.

Independent advice firms might view robo-advisers as less of a challenge, but will their clients? With this in mind, independent firms need to highlight their value propositions, and focus on what robo-advisers cannot offer, such as holistic market advice, the ability to consider the bigger picture, and most importantly the human-to-human personal service that sets them apart.

The appeal of robo-advisers

Robo-advisers are popular for their 24/7 access, easy-to-understand solutions, and functionality akin to adviser platforms. However, most digital wealth management options offer limited investment choices, primarily passive or ETF-based, with few having a full range of tax wrapper options. Therefore, advice firms that recommend a wide range of tax wrappers and investment solutions, including DFM and MPS options, hold a distinct advantage.

Arguably, modern advisory services must ensure their personal service is exemplary. Choosing strong platform partners that support these goals is crucial.

D2C platforms and digital wealth management options understand this and are majoring on customer service to attract clients. We’re seeing them promote themselves on service/functionality, lower charges, no advice fees, and incentives like cashback for new clients, along with access to a real person when needed.

Client education

Defaqto research indicates that Gen Z would rather use a D2C platforms or digital wealth solutions via an app or website due to their time constraints and desire for quick, easy access to education and functionality.

Advisors might think that clients aren't particularly interested in knowing their options or the due diligence involved. However, educating clients empowers smarter financial decisions, which is why we encourage advisory firms to emphasise this. Providing peace of mind is a significant benefit that should not be overlooked.

In summary

Whether DIY, D2C, or adviser-assisted approaches are preferable depends on various factors, including financial literacy, complexity of financial situations, and comfort level with managing finances independently.

Advisors provide valuable insights and expertise that help individuals make informed decisions and optimise their financial outcomes—capabilities that go far beyond what today's algorithm-driven robo-advisors can offer.

However, for some firms, embracing robo-advisers can help them serve more clients and build a client base for full advisory services in the future. Pension Potential is an example of a robo-advice solution that helps those with less than £250,000 take their pension benefits, referring clients back to advisory firms in set circumstances.

Looking ahead, perhaps robo-advisers are not the enemy, but tools that can help advice firms extend their reach and deliver more financial advice to more people—a positive outcome for all.