Financial advice: our robo future
It’s the cheaper, mass alternative to traditional operators but online financial advice is still finding its way.
Nobody claims that this will be a great year for the financial advice sector, but every crisis offers opportunities and for the new world of digi-finance (some call it robo advice) the forced switch to online interaction during COVID-19 has been a turning point.
Chris Brycki, chief executive of Stockspot, often seen as a pioneer in this space, says: “When the crash came we found our own customers were very comfortable with the online interface we had built. In some ways if you watched our operation it was little different day to day, while it was clear many traditional advisers were overwhelmed with people needing attention.”
At its best digi-finance — the mass provision of financial advice over the internet at a much cheaper price than traditional services — is the great hope for everyday Australian investors who may never be willing to pay $3000 a year or more for advice.
From a standing start a few years ago the sector has grown steadily.
The best known players include Stockspot, Six Park, Raiz, InvestSMART, My Prosperity and MapMyPlan.
Notably, in contrast to the US where Fidelity, JPMorgan, Schwab and other market “incumbents” have joined sector stalwarts such as Betterment and Wealthfront, none of Australia’s major banks or insurers has yet made an impact in digi-finance. Indeed, as the big banks exit financial advice for all but their wealthiest clients, it’s clearly a moment for the more inclusive robo advice segment of the market.
It’s sobering to realise that financial advice is expensive and of best value to those who have money in the first place. Inside the industry it is generally accepted that only a segment of the wider population is a natural market for financial advice — around two million people at a maximum. In reality, many investors within even this “mass affluent” group will not be able to afford advice services unless they move to digi-finance.
“It’s a crisis, the big guys are literally giving up on customers with smaller portfolios, they don’t want to lose them but they can’t justify keeping them,” says one digi-finance specialist, Pat Garrett.
In full: The List - Australia’s 100 Top Financial Advisers
Garrett is chief executive of robo-advice group Six Park, which he co-founded with JPMorgan executive Brian Watson back in 2014.
He says: “The business is changing (and) we are being seen as a complement to financial advice — in many ways our key offering is in asset management … we’re providing digital tools for asset management objectives.”
At its best, digi-finance should be ideal for those who just want limited advice on what to do with a set amount of money that may have arrived through a one-off event such as a redundancy or an inheritance.
Using robo-advice services usually costs a few hundred dollars rather than a few thousand dollars for a face-to-face visit with a traditional adviser.
Surveys across the sector show younger investors are often more comfortable ticking the boxes in digi-finance application forms and receiving a generic advice plan often dependent on low-cost exchange-traded funds rather than seeing a more traditional adviser.
Bernie Ripoll, a former parliamentarian who was one of the architects of our current financial advice system, is now chief executive of MapMyPlan. It’s a robo adviser with a twist — a subscription service that offers advice to individuals and corporate clients such as Ernst & Young.
“This crisis changed the concept of going digital from a choice into something everyone in this area had to do to survive,” says Ripoll. “It is going to have huge ramifications in the future. We can enhance and scale services in a way we never could before.”
But not every robo adviser makes it across the line in an area that remains under pressure on many fronts. Late last year one new contender, Plenty Wealth, a digi-finance operation founded by Greg Einfeld, a former chief executive at MLC, shut its doors citing a range of issues, particularly the rigid rules around advice which the regulator applies uniformly to both robo advice and traditional face-to-face advice.
In a departing shot at the Australian Securities & Investments Commission, Plenty Wealth issued a statement saying: “We have formed the view that it is overly challenging to provide holistic digital advice within the constraints of the existing frameworks. If Australia wants robo advice, the regulatory framework has to change.”
It’s a difficult situation — a substandard financial advice industry has led to a wave of new regulation that makes it ever more expensive both to give advice and pay for adviser hours. Robo advice offers a partial solution at least in terms of cost, but can it deliver in terms of advice requirements? The answer is yes, sometimes.
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