Business Technology

The small company making magic in the world of pensions

7 min read

27 November 2015

As the pension freedom revolution rolls on, the British pensions industry is currently undergoing huge changes that will affect millions of people, but one company has embraced “robo-advice” to provide support to employers and employees alike.

One of the biggest issues for pensions providers and customers alike is advice. How can providers give customers the advice they need to make the right decisions about their own pensions but in a way that is cost effective for the provider?

If you’ve got a very substantial pension pot you might be willing to spend a few hundred pounds on advice, but for most people with more modest savings this doesn’t make financial sense.

A solution to this problem that looks set to become the preferred option is what is known as “robo-advice”, in other words, an automated advisory service that uses online questionnaires and computer algorithms to calculate the best options for each customer.

One of the first entrants into this market is Wealth Wizards. It offers fully regulated advice via simple online apps and has pioneered the combination of chartered financial planning, actuarial science and smart software technology to deliver expert advice at an affordable cost via the internet.

It works directly with employers, or alongside pension consultants, to offer pension and retirement advice to company employees.

Customers tell the system about themselves and this information is used to create a personal investment strategy. Wealth Wizards explained why it believes that this particular strategy is suitable for the customer: “It’s annually or whenever the customers asks us to look again at their circumstances to make sure that it’s still the best approach for them.”

Many of the senior team at the company have come from a financial services background. CEO Andrew Firth and his chief innovation officer were founding members of Egg while the two other founders built and grew their own successful employee benefits company. Because of this diverse combination of experience, the team knew what to expect in a startup company and growing a brand.

The four founders invested their own money, raising “tens of thousands,” to launch and develop the business. “It’s a very good discipline to make sure you’re focussing spending and investment in the right places,” said Firth.

They initially developed the all important software in parallel with a face to face advice service.

“We drew on a range of expertise including our in-house investment experts, chartered financial planners and IT developers, with consultancies AKG and A2Risk,” he detailed.

“Over time we gained the confidence to let customers use the advice apps independently, and we continued to enhance the service, so that we now have a growing team of developers who are implementing regular software updates as well as new online advice apps.”

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Wealth Wizards’ advice is an “expert system” based on using algorithms to score an individual’s profile and derive suitable solutions based on personal circumstances to create a personalised output.

The granularity provided by a scoring approach, compared with more conventional decision trees, has provided a real breakthrough in the suitability of the advice delivered, according to Firth.

Promoting the company and its services has been relatively easy thanks to media interest sparked by the fact that it’s one of the first of what looks like a growing trend.

Firth said: “We’ve had a lot of interest from journalists writing articles about this topical subject and as we’re a pioneer in ‘robo-advice’, we’re pleased to be approached as thought-leaders on the subject.
“On a longer-term basis, we hope to focus on building the brand in the UK by referrals, events and online engagement.”

He has rejected concerns by some in the pensions industry that “robo-advisors,” can never give advice that is as appropriate as that delivered by an independent financial advisor.

“We can’t speak for other ‘robo-advisers’ but the advice given by Wealth Wizards is tailored. Once they’ve been registered, employees answer a set of questions and our system of algorithms derives suitable solutions based on personal circumstances,” Firth explained.

“In most cases a full advice report, including a recommendation on how to invest their pension, is instantly available.”

He has accepted that while technology is opening up advice at scale, the overall complexity of pensions means that sometimes an employee will need to provide more information or speak to an adviser directly.

“Our platforms will identify anyone whose circumstances are complex and put them through to a relevant adviser,” he said.

Driving innovation in a heavily regulated area means there is no scope for trial and error when it comes to the company’s live apps and services. Fortunately the Financial Conduct Authority has developed a positive approach to fostering innovation with initiatives such as Project Innovate that are aimed to encourage new ideas and service while maintaining standards.

“The discipline of operating in a regulated environment means we have developed really robust processes that put us in good stead for future developments,” said Firth.

Insurance and investment giant LV= recently took a majority stake in Wealth Wizards and have injected some development capital into the company which means that it’s going through a phase of rapid expansion. 

“We’re continuing to attract customers of our white-label automated advice platform and gain employers who are providing our Pension Wizard app as an employee benefit, as well as our Retirement Wizard app being promoted in 2016,” said Firth. “It’s going to be a busy year.”