Strategy

Robo-Advisors Will Not Replace Humans, Says Lombard Odier

Robbie Lawther, Reporter, London, 4 September 2017

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The firm's UK chief executive spoke to this publication on Millennials surrounding technology, impact investing and employing the next generation.

Many of the Millennial generation of wealth holders want to use financial technology to do their banking and it's unsurprising that the sector has sought to win their custom through technology, heralding developments such as robo-advisors.

However, for all the buzz around fintech, Lombard Odier UK chief executive Duncan Macintyre recently told this publication that robo-advisors will not replace human interaction because Millennials are not solely focused on carrying out their financial affairs through technology. 

“I think you shouldn’t assume that the next generation aren’t as connected when it comes to human interaction,” Macintyre said in a recent interview. “Many people always feel it can be replaced by technology. We contend it can’t be. Technology supports bankers. You cannot turn us into robo-advisors because robo-advisors will never understand the emotional impact of wealth, they will deliver the information but never deliver the emotional issues. If a portfolio has moved around a lot, or your sterling position has moved so much, often it can only be explained by a human rather than through data analysis,” he said.

A recent study carried out by Minerva Lending, who surveyed 1,000 UK high net worth individuals, found only 12 per cent trusted the financial advice of a robo-advisor, which was the least-trusted option. This highlights the fact that maybe technology is not always at the forefront of clients’ needs. However taking advice from a robo-advisor is a different to applications, which clients can use on the go. Legg Mason’s 2017 Global Investment Survey found almost half of Millennials want to plan their financial lives over a smartphone rather than through more traditional routes.

Macintyre did however state that Lombard Odier, which is managing around SFr242 billion ($253 billion) in assets (as of 30 June 2017), has a great solution platform to meet the demand’s of Millennials, which will steer it in good stead in the future ahead of its competitors.

“Lombard Odier has a hugely advanced proprietary technology platform. We own it, we built it. Our technology platform has been invested in by the partners for the past 16 years,” Macintyre said. “It was a very conscious decision of an intergenerational business to invest in building our own technology platform, and I think this will turn out to be the single most important thing. I think a successful private bank needs to have its own technology platform, away from the trend of outsourcing. 

“The platform is a bespoke, private client only platform. It is not something that has been adapted from an institutional or retail platform. What makes it unusual is that it is a singular platform, that means we can book in 12 booking centres around the world, but we are operating on a singular platform. This means you can have one advisor operating money in multiple jurisdictions. It also means that the client has a system called My LO, which carries all of our proprietary research. How the Millennials receives this research and information is completely up to them. They can receive it through email, social media, through My LO, through face-to-face or even in print. Technology is absolutely at the core of what we are building here. I believe if you don’t have good technology you can’t grow a good private banking business,” he said.

Impact investing
Aside from the use of technology, impact investing is a key area for Millennials, as surveys say. According to research within Lombard Odier’s Rethink Now Summer 2017 document, 87 per cent of Millennials think business success should be measured by factors other than just financial performance. UBS Wealth Management also found in a white paper that under-35s are twice as likely to withdraw from an investment that may experience sustainability concerns. More companies and institutions are starting to look at dealing with investments which are looking to make a difference to society and the enviroment. There are also moves to quantify impact investing in ways allowing for benchmarking of performance and hence broaden its appeal. (To view an article around such matters, see here.)

In July, UBS raised $325 million for an impact investment fund that collaborates with individuals such as rock musician and campaigner Bono and philanthropist/film-maker Jeff Skoll. 

Macintyre, who joined the firm from Coutts & Co in 2016, admits Lombard Odier understands that impact investing is growing vastly in the financial services industry, but believes the term has been branded around without educating people about it.

“Responsibility to society and wealth preservation is at the core of the DNA of Lombard Odier,” said Macintyre. “I think all generations are looking at impact investing. But what it is, is a subject for discussion. One of the things that people have an inherent guilt about is that if they have wealth that is inherited, they are thinking about it as a responsibility. You want to think the money you have got is doing some good. You are giving something back, which is different than being a philanthropist."

“Impact investing is not philanthropy; impact investing is not giving away your wealth. It’s about having a positive impact through your investment. I think impact investing is one of those terms that has been thrown out there as this big blanket phrase and therefore needs some education. This is why as a subject it is good for the next generation and the first generation to have some education on it. One thing we would say to the first generation, and to the next generation. If you don’t understand what you are investing in, then don’t do it,” he said.

Employment
Firms are now looking to improve their numbers of Millennial advisors as the wealth passes over to the next generation. Recently, this publication interviewed Stephanie Gopalakrisna, vice president, head of communications at BNY Mellon’s Pershing, who said the company was looking to attract Millennial talent to deal with clients.

However Macintyre has said that Lombard Odier’s vision for the future does must be executed carefully. “This is a careful subject,” Macintyre said. “You have to be careful with juniorification, where people look to bring in more junior talent effectively to be next-generation leaders. We believe in employing secondary or tertiary level bankers. We are looking for people who are experienced. We don’t think you go to a consultant if they have only been a medic for six months. Given the wealth that we are dealing with here, you need to have people who have seen and done this before and understand this. This is why we invest always in more senior people. We make no apologies for that, we are looking for the best talent out there." 

Macintyre added: "We have added a lot of people this year; and we are actively adding talent and that’s important for us. We are not looking to build a junior staff. We will take people through but we will not actively try to create a separate segment looking after younger clients. We think younger rich clients deserve exactly the same level of expertise as other clients."

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