A robo-future may just come with the democratisation of investing.
The modern-day financial advice market is experiencing a seachange – disrupt, or be disrupted.
Robo-advisers are moving into the forefront of the conversation surrounding advice in the modern age, brought on from revelations by the banking royal commission. Trust is falling in financial advisers, and the notion of advice being simply too expensive is quickly coming to light.
However, one industry expert believes the problems that have emerged also bring opportunities.
“A lot of major financial institutions recognise that serving the mass market through technology is a smart move,” says Pat Garrett, co-CEO and co-founder of robo-adviser Six Park.
“There’s going to be a multi-trillion-dollar wealth transfer before long, and if you’re an accountant or a financial advisor and you’re not well equipped to service a digital-led audience that’s seeking transparency, you’re probably going to be at a serious disadvantage.”
The future of financial advice is something Garrett sees as highly automated but people-centric: relying on human professionals to help guide the investment management process and ETF selection while reaping the benefits of automation.
“The future of advice will be the combination of lower touch, technology-led service with the more complex, human face-to-face service to span the wealth journey needs of consumers,” he says.
“Because robo-advice is delivered digitally, it is highly accessible to the ‘ordinary’ consumer, whereas professional investment advice has typically been available only to those with substantial amounts of money – usually $1 million or more”.
“Someone with as little as $5000 to invest can set up a well-diversified, professionally managed portfolio”.
Garrett says robo-finance is a segment of the industry booming overseas which is now beginning to take off in Australia, branded the “democratisation of investing” that has “levelled the playing field”.
The likes of JP Morgan, Goldman Sachs, Fidelity, Vanguard, Schwab and Blackrock have already implemented robo-advice as complementary to a traditional advice ecosystem, something Garret says is crucial to serving clients more efficiently.
“It’s starting to grow in Australia as both consumers and financial advisers and wealth managers become more aware of the important role that robo-advice can play in providing effective investment management service to consumers,” he says.
Prudent investment diversification and ongoing portfolio management resonate with both novice and seasoned investors, regardless of where this management comes from.
“Value for money is attractive to most people—it resonates with everybody, not just young people,” he says.
“The fact that robo-advice appeals to the younger cohort is incredibly important given the massive intergenerational wealth transfer of trillions of dollars that is going to take place in the coming years.
“This is important for financial advisers, as they need to learn to more effectively attract, engage and retain these younger consumers now, before this wealth transfer, so the wealth management firms have a strong relationship with those who will be high value clients in the future”.
Standing with human advice, not against it
Another home-grown Australian provider, Stockspot, has begun making similar noise to popular robo-advisers in the American financial landscape.
“I don’t think robo-advice will replace anything entirely,” he says, “because financial services and investing generally will always evolve”.
Stockspot chief executive Chris Brycki believes as more people value investing as highly as saving, robo-advice will “simply become another option” when growing wealth and become a part of the financial advice fabric.
“Robo-advice demystifies investing by making it accessible and easy—you don’t need to have a finance degree to make sensible long-term investments,” he says.
“I don’t think robo-advice will replace anything entirely,” he says, “because financial services and investing generally will always evolve”.
“But I do think ‘traditional’ advice will change as people become more aware of investing generally. Perhaps there will be more integration between robo-advice and traditional advice, but this will take open-minded advisers breaking free from the established norms.”
Robots are no excuse to be lazy
Brycki suggests robo-advice sceptics do their own research, find unbiased studies comparing the returns of active strategies versus passive investing in ETFs, and base their opinions on these factors as opposed to worrying about a lack of human involvement.
“Sceptics are either worried about the misconceptions around human involvement, or are doubtful about passive investments,” he says. “They don’t see the value in ETFs, and don’t believe a platform with minimum intervention can provide adequate returns or support during periods of market turbulence.
“During the market volatility in early 2020 we helped calm the nerves of thousands of clients.”
This automation also offers a level of advice that can bypass common human foibles and conflicts of interest, leading to what Brycki believes might be a fairer financial system.
“For so long, people have been paying excessive fees for financial ‘expertise’ when it’s proven that past performance is no indicator of future performance,” he says.
“Emotion and human judgement simply get in the way of effective investing, so it doesn’t make sense that we pay more for what’s essentially the good luck of a particular advisor.
“Robo-advice simply follows the tenets of sensible investing, and if more people believe in sensible investing, then we’ll hopefully all benefit from a fairer financial system.”