Robo advisers: Opportunity or threat?

Tim Falk 27 February 2017 NEWS

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finder.com.au speaks to Joshua Stega, AKA The Wealth Guy, about the impact of robo advice on Australia’s financial planning industry.

The recent arrival of digital financial advisers in Australia looks set to dramatically shake up the financial planning and advice industry. Providing convenient and affordable access to easy-to-understand advice, these robo advisers have in some quarters been forecast to spell nothing but doom and gloom for the traditional financial planning sector.

But is it really that bad? Is robo advice the way of the future for all financial advice, or perhaps only some? finder.com.au spoke to Joshua Stega, financial planner from JAS Wealth and the man behind personal finance blog The Wealth Guy, to find out.

Robo advice vs face-to-face advice

Robo advisers are a relatively new concept in Australia, only becoming more widely known in the past couple of years. These digital advisers ask customers a few simple questions about their financial situation, their investment goals and their tolerance for risk, before using complex algorithms to match them with a diversified portfolio of exchange-traded funds (ETFs) that matches their investment profile.

However, as the popularity of robo advisers spreads and a new generation of Australians goes looking for affordable advice on managing their money, what impact will this have on financial planners that offer face-to-face advice?

“It hasn’t had an impact on my business,” Stega says of JAS Wealth. “If anything it has helped, because we look to incorporate robo advisers where it makes sense for clients. I think it’s beneficial because, at the very least, it’s getting people to start thinking more about their financial future. I see robo advisers as an opportunity rather than a threat to my business.”

So rather than stealing customers away from traditional financial advisers, robo advisers are working in tandem with their real-life counterparts. Instead of relying on one or the other to help manage their finances, many Australians are combining the benefits of both.

“We are seeing people who have started with robo advisers but now want some reassurance that they are doing it right, or now feel that they have built up some knowledge and are ready to take it to the next level,” Stega says.

As an example, if he has a client who is struggling to save or who wants a way to get started in the investment market with a smaller initial investment amount, Stega will usually suggest that the client look at a robo-advice service such as Acorns or Stockspot. He points out the rounding-up feature that Acorns offers as a great example of a technology that helps people to save. And saving a little more is something that all his wealth-building clients could benefit from.

“For clients with a larger balance, we may incorporate a robo adviser to manage the core investment account (because it’s low cost and will match the benchmark performance), while we provide personal investment advice on the satellite portion of the portfolio (the part of the portfolio where we are looking for investment ideas that will outperform the market),” he says.

Australian attitudes

In the past couple of decades, technology has transformed the way we manage our finances. Say, for example, you’re looking for a high-interest savings account. In the not-too-distant past, you would have simply popped into your local bank branch and asked the teller to help you open a savings account. There was no shopping around for the best interest rates and the lowest fees and every bit of the process needed to be done in person.

These days things are a little different. You can quickly and easily compare the rates and features of multiple accounts online, apply to open an account over the Internet and deposit and withdraw funds via your mobile.

“Technology has opened the financial industry such that people can do their research online, as well as access products directly without having to go through a middleman,” Stega says.

However, at the same time, people seem busier than ever and sometimes they just don’t have the time that is required to ensure their financial plan is on track. So are we becoming more savvy at saving and looking after our finances, or is our attitude to investing still in need of improvement?

“It’s interesting to see how much of an effect growing up during different eras can have on your savings and investment mentality. In my experience, baby boomers have tended to be more conservative, with higher rates of savings and lower levels of debt,” Stega explains.

“On the other hand, I have seen some generation X clients with balance sheets that would keep you up at night – high levels of debt and next to no buffer for a rainy day. Millennials tend to be more inquisitive and are prepared to use different technologies to give them clarity and help them save, such as online budget tools and robo advisers.”

Just as with any other new form of technology, it’s the younger generation leading the charge with the adoption of digital advice. But many Australians are still uncertain and cautious about robo advice. Not only is it very new to our shores, but the idea of letting a robot take control of your savings seems like something out of a futuristic sci-fi movie.

And some of us aren’t quite ready to let the robots take over. “Robo advisers seem to be gaining traction with those investors wishing to start small, or who already have some basic financial knowledge. On the other hand, investors who are making larger and more complex financial decisions still prefer to speak to someone face to face,” Stega says.

The future of financial advice

With an estimated 80% of adult Australians not accessing financial advice, it’s clear that the traditional advice sector simply isn’t meeting the needs of the wider community. A lack of transparency and affordability have long been two of the biggest barriers holding back our enthusiasm for financial planners and these are two of the problems robo advisers aim to address.

“There is no doubt that robo advice will grow and that the functionality that it offers will continue to improve,” Stega says. But that doesn’t mean it will replace face-to-face advice.

“I think we will see more hybrid models, with a robo-adviser base and a face-to-face adviser you can speak to when you need more tailored advice. It won’t replace the human element just yet, because there are always those who are just too busy or who couldn’t be bothered and would rather outsource the management of their finances to an adviser who they trust.”

And it’s trust that’s the most important factor in this equation. “In a market correction, would you be comfortable relying on a robo-adviser system to get you through, or would you rather speak to a person?” Stega asks.

And your answer to this may just be an indication of what the future holds for financial advice in Australia.

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