Your Business

Robo-advice: practical advantages for advisers, clients

6 July 2018

Automated advice can be seen as a challenge or a complement for advisers, writes Louise McCabe.

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Robo-advice will transform the existing delivery model for financial advice. But the idea that these “robots” will simply replace financial advisers isn’t the likeliest outcome.

We already know how robo-advice is emerging around the world. Advisers should also know the real ways it will impact their business and the client experience.

Perhaps the greatest impact will be on price.

“You can capture investors that don’t have a lot of money or know-how to get suitable investment guidance. A $10,000 investment in a globally diversified portfolio of ETFs [exchange-traded funds] can cost $50 a year, including brokerage [with robo advice],” according to Patrick Garrett, chief executive officer of robo-advice firm Six Park Asset Management.

This reduced price for advice will be matched by much faster and more efficient systems, meaning advisers can work at scale. With robo-advice, multiple interactions are streamlined and advisers can target different customer profiles. What would have taken weeks in the past can be instigated instantly and remotely.

Investment portfolios can be finalised in one brief online session so a fee for a service that may have taken a lot longer without automated advice can now be charged more often.

“By investing in technology and digital marketing you are creating operational efficiencies to lower operating costs that will not only bring down fees, it will expand your client base,” explains Garrett.

“Fee compression has already started in the wealth-management space, and it's going to continue. By investing and redefining their business model [advisers] will also be able to engage with a broader audience.”

Key robo-advice advantages for clients

Potential reduced cost isn’t the only advantage for clients. Digital platforms make sense for clients that may not necessarily want a full suite of services.

Sophisticated investors understand the benefits of investment analytics and the automation of services such as paperless onboarding. Clients that cherry pick products and dictate their levels of engagement will embrace automation and lower fees that don’t eat into their investment.

Digitising the delivery of advice means faster, more convenient applications, which is a must for Millennial clients who are used to immediacy and transparency. (By failing to meet the expectations of an evolving client base, advisers that haven’t integrated automation risk being left behind.)

Robo-platforms provide transparency making it easier for investors to see gains and losses, monitor their performance, and keep track of their dividends in real time from anywhere -something clients have come to expect.

How advisers and robots work together

Robo-advice is disrupting the advice sector, but the adviser’s personal contact, support and individualised holistic plans will still set them apart, generating demand for their service.

Advisers provide empathy, support and reassurance that clients' value. Garrett believes technology-driven investment management “frees up time for advisers to spend on activities where they really add value to their clients, like estate planning and more complex financial advice, where the human interaction is absolutely required”.

LinkedIn and Greenwich Associations, in a 2016 survey on technology and wealth management focused on Millennials and Generation X, found 60 per cent of mobile-savvy Millennials still think face-to-face meetings are crucial. Other research indicates high-net-worth individuals see their advisers as key to the advice process.

While clients are clear in their interest in personal financial advice, there’s a few areas robo-advice can assist advisers in in the short term.

Increasing regulation, a bane for Australian financial advisers, can be neatly automated using technology, adapting to regulatory requirements as and when they come to pass.

Algorithms devoid of human biases and emotions may counter consumer distrust of personal advice by automating parts of the product recommendation process, making objectivity clear.

As mentioned above, with regulation, training and education requirements becoming a priority for local advisers, “any inefficiencies in their business will become more painful,” says Garrett. (Perhaps the single biggest advantage of robo-advice is the efficiency of the advice process.)

The challenge for financial advisers will be combining the benefits of technology with the many advantages an experienced adviser can bring. By building digital capabilities to engage with specific, targeted clients in a timely and meaningful way, advisers can build a more profitable practice.