How artificial intelligence is helping everyday Australians make investment choices
For many Australians, investing or engaging the services of a financial adviser may seem out of reach. But thanks to the innovation of fintech companies like Stockspot, financial advice is much more accessible.
Stockspot founder and CEO Chris Bryci says since the launch of the robo-advice service he founded in 2014, response from the public has been positive.
“Professional financial advice is expensive and many Australians are locked out of the market for personalised investment advice due to the high costs involved,” Bryci says.
While younger people aged between 18-35 are typically the first to embrace online businesses and technology, Bryci has seen an increase in the number of older Australians giving the service a go.
Robo-advisers such as Stockspot are opening the doors to a wider range of investors by using algorithms to plan and manage investment portfolios. This results in an automated process, which reduces the cost of seeking financial advice. For consumers, it also reduces the risk of financial loss as it does away with risks associated with human error. (That doesn't mean you're guaranteed to make money, of course.)
Bryci says robo-advisers are moving into a new phase of development through the use of Artificial Intelligence (AI). In July this year, Stockspot integrated AI in its new dashboard with the launch of a digital financial assistant. The assistant uses data and analyses the investment behaviours of Stockspot’s clients. The idea is that the assistant will eventually learn from the information it gathers, providing data-driven analysis and advice.
We interviewed Bryci to find out how AI is helping Australians make improved investment choices.
Q: How have Australians responded to Stockspot since it launched?
We’re seeing a great response. Stockspot has built a strong performance track record since our launch in 2014 and we now have thousands of clients from around the country.
Robo advice is the fastest growing area of retail investment. With total assets managed by robo-advisers is set to grow to US$2 trillion by 2020, investors are increasingly open to robo advice and Stockspot is the pioneer in this space in Australia.
As a nation, we pay the highest investment fees of the developed world thanks to the dominance of a few large organisations in the wealth management and superannuation industries. People are more aware of this and they’re fed up with paying such high fees; our Fat Cat Funds Report found 45% of returns were paid away in fees.
Q: How is the Australian financial industry attempting to respond to fintech disruption?
The big banks and wealth managers have outdated technology infrastructure (built decades ago), traditional branch networks and legacy distribution (branch sales people and financial advisers). This makes it very difficult for them to innovate in a big way since they’re stuck in the past.
Some banks are involved in fintech incubators and have an "innovation division"; at the same time they try to stamp out fintech competition by making customer data difficult to access.
Q: Who uses robo advice the most? Has it opened up wealth management to more people?
Robo-advice is for all investors, regardless of if you have $2,000 or $2 million. Low-cost, well-diversified ETF portfolios are proven empirically and academically to be the best way to grow wealth over the long-run.
The early adopters of most online businesses tend to be younger people aged between 18 - 35, and most of our clients are Gen Xs, Ys or Millennials. In 2016 we’ve seen a growing number of older investors come onboard and about 20% of our investors are aged 45 and over.
Professional financial advice is expensive and many Australians are locked out of the market for personalised investment advice due to the high costs involved. Stockspot can offer professional investment advice for a fraction of the cost.
Q: How has AI been integrated into your service?
We have integrated artificial intelligence and machine learning into our client interface dashboard with the launch of a digital financial assistant.
The digital financial assistant learns from the data and behaviour of the thousands of clients that we have and coaches them to make better investment choices. It provides awareness of their emotional triggers around investment, for instance, when or how often a client tops-up or withdraws from their portfolio may signal that they are prone to chasing markets or are risk averse.
Q: What's the benefit of artificial intelligence (AI) driven advice over human financial advice?
Robo-advisers like Stockspot use technology to remove the human emotion that make bad decisions and eat into returns. The online automation avoids human behavioural bases like risk aversion which human advisers aren't immune to. AI enhances this because it interacts with the final decision maker - the investor.
Our digital financial assistant can educate clients, in real time, against these behavioral mistakes. It means clients receive real data-driven advice. It is tailored to them, in their best interest and with the aim of optimising their portfolio. It's like having a financial expert on call 24/7 - clients can access it on their own terms, without having to pay thousands of dollars for.
Q: How else do you see AI being used or changing the financial industry?
AI in the financial industry is being driven by the falling cost of computing power, the availability of big data and improving algorithms.
As well as driving our digital financial assistant, we see the potential for AI in customer support, compliance and insurance.
Q: What are the potential risks for customers using robo-advisers?
Anyone thinking about investing should research the company they’re considering investing with, ask lots of questions and look carefully at the fee structure and security of their funds.
On the surface some robo-advisers appear to have low fees but they charge a brokerage fee every time you top-up or when they rebalance the portfolio. These fees add up and eat away at any returns you make. Stockspot charges a very clear management fee which includes brokerage and all rebalancing. We think this is better for clients as it means we have no incentive to buy and sell often to generate brokerage (which is no good for clients).
Some robo-advisers mix client funds together by using a custody structure. This exposes clients to counterparty risk which is another potential risk that investors should be aware of. Stockspot ensures that all investments are held safely in each client’s own name at all times.
Also understand the type of advice you will receive, some robo-advisers only offer general advice which is a basic menu of options and the client has to chose from. Stockspot offers professional financial advice that is personalised to the client's financial goals and takes into account several factors such as cash flow, stage of life and risk aversion.
Finally, some people may expect that robo-advice is a way to get rich quick, and will be disappointed when they discover that it's a steady and sensible way of growing wealth over the medium to long term.
Q: Aside from AI integration, how else has Stockspot developed over the years in response to client needs? Is the product in its current form similar or different to the problem you were trying to solve? How?
We regularly make updates to the platform to improve the client experience. The problem with too many financial institutions is they live in a vacuum outside of what clients want.
The AI digital assistant was part of the launch of an investment dashboard that will give clients more control over their investment experience and make tax reporting easier. We also recently reduced costs for all clients and eliminated the advice fee for investment portfolios under $50,000.
In March we introduced Stockspot Themes for clients with portfolios over $50,000, to give clients more choice over the assets, countries and sectors in their portfolio while still ensuring their portfolio is consistent with their risk profile.
Q: What's next in this space?
We’ve grown our development team and have a long list of features in the pipeline. Most are centred around making it easier and more convenient to learn, interact and invest with Stockspot. We’re also developing partnerships with like-minded businesses.
Image: Larry Lee