How robo advisers are helping Australians break through the barriers of getting financial advice
finder.com.au chats with Harry Chemay, CEO of Clover, to find out how robo advisers are making it easier for Australians to access tailored financial advice.
According to the August 2015 Financial Advice Report from Investment Trends, more than 2.5 million Australians wanted financial advice in 2015. However, only 400,000 of us actually accessed that advice. That’s 2.1 million Australians who wanted help managing their money but, for one reason or another, didn’t get the advice and assistance they needed.
To find out why, we spoke to Harry Chemay, CEO of digital financial advice provider Clover, about the barriers in the way of Australians seeking financial advice and how robo advisers can help.
Barriers to financial advice
One of the major barriers for Australians seeking assistance with managing their investments is that the financial advice industry caters mainly to the needs of older Australians with more complex financial needs. This includes issues such as retirement planning advice, superannuation and estate planning.
However, Chemay says that there are many younger and middle-aged Australians who need simpler advice on issues other than retirement. “We're talking about advice on how to save for a particular goal,” he explains. “One of the goals that seems to be resonating with our client base is just saving for a first home deposit. We see Australians wanting advice on how to save for children's education fees and other goals like paying down the mortgage faster, or perhaps big purchases such as family holidays.”
He also points to the fact that a lot of people find it intimidating to go and see a financial planner. “Obviously there are also issues of taking time off work on multiple occasions to go to see a planner and then there are issues of cost,” he says.
“A recent ING report called The truth about Gen X and Y suggested that the most that Australian Millennials and Gen Xers wanted to pay for upfront comprehensive advice was $250. Now, we know that the cost of advice is more like $2,500 to $3,000.”
The robo solution
For Australians who don’t want comprehensive retirement planning advice, or who don’t want to pay the hefty fee of a traditional financial adviser, robo advice services are worth considering. Although the service provided differs between companies, the main aim of any robo advice company is to make financial advice convenient, affordable and accessible for a wide range of people.
“We see this gap between the advice that is provided by the industry and the advice that is needed by a whole number of Australians who aren't close to retirement,” Chemay explains. “Robo advice can play a part in closing that advice gap because it does two things: it reduces barriers in terms of accessibility and it reduces barriers in terms of complexity.”
This, he says, allows more Australians to gain access to advice earlier on in life. The idea behind Clover is to find out what is of particular financial concern to each client, help them determine whether they can actually reach their goals and, if they can, how best to go about it.
“Our technology has been built to encourage people towards their goals by allowing them to interact with the tool to find out whether they are on track, whether they need to contribute more, or whether they need to take a different amount of risk in order to achieve their goals. Or, failing that, whether they need to reassess the time frames for the achievement of those goals,” Chemay says.
The minimum investment amount with Clover is $5,000 and from there it depends on how much you would like to invest and how much you'd like to save on a regular basis. If you want to save for a period of longer than three years, for example, Chemay says Clover offers a viable alternative to a high-interest savings account.
“What we find now is that a lot of Millennials, a lot of young Australians, are having to save for up to four years for a deposit, purely because of the high cost of properties. So, on that basis, putting some of your money to work to earn a slightly higher return than the 2.5-3% that you get from a term deposit becomes a possible option. Robo advice platforms like Clover can help people out there,” Chemay says.
Currently in the beta testing phase, Clover’s fully-fledged robo advice service is due to launch before Christmas 2016. Clients who sign up to the investment portfolio will be asked to provide details of their financial goals and then asked questions to gauge their risk tolerance. Eventually you will be provided with an investment program to consider and if you’re ready to invest, you can execute the contract with Clover online.
The whole process is designed to be as quick and efficient as possible, but Chemay says that the rise of robo advisers won’t necessarily mean the fall of traditional financial advisers. “I think the key thing about robo advice is that it's finally allowing advice to be provided to a whole new generation of investors who, ultimately, will no doubt connect with human advisers as their needs get more complex,” he explains.
“But, at the start, when their needs are simple, tools like robo advice will be a great starting place for them.”