Robo-advice finds market in digital-savvy older investors

Older independent investors turn out to be early movers in robo-advice market.

Hey robo-advisers … You’re looking the wrong way! Millennials have no spare money and don’t care about investing just yet — but older Australian investors are more than ready to play.

One survey after another in the US shows older investors are ­actually super keen to examine low-cost digital-based financial services.

And closer to home, it’s worth pointing out that a recent survey from the SMSF Association revealed a higher portion of Australia’s one million SMSF operators were willing to try robo-advice than the general public.

No doubt this emerging reality has not been lost on the kingpins of Australian finance — the banks. Earlier this week, NAB funds management division MLC took an each way bet on robo-advice, launching a two pronged service aiming robo-style products at both millennials and what MLC’s Lara Bourguignon called “digital-savvy pre-retirees”.

MLC’s move makes a lot of sense because as the specific merits of robo-advice become clear, it is now obvious that a mature investor who is focused on fees and experienced enough to know what you don’t need to pay for — could actually be the winner here.

There is understandable scepticism over robo-advice because there is a genuine fear that you might not be as well looked after by an algorithm-based service as you might have been by a human.

But to look at it another way, if you only need precise tax and administrative advice while independently running your own portfolio, then the idea of robo-advice suddenly becomes a lot more appealing.

One of the new entrants to the Robo-advice market is Six Park with an advisory board led by former finance minister Lindsay Tanner. As Tanner pointed out at the launch of Six Park, one of the key target markets for his service would be SMSF funds, where a lack of diversification is a recurring problem.

Though it is early days, it would seem that robo-advice is actually just what many SMSF operators may need — a pathway to investment options traditionally excluded due to expense: This might include overseas shares, infrastructure, bonds, emerging markets and more.

And if it is the case that ETFs (exchange traded funds) are the primary vehicle for this expansion, then most investors will probably accept their limitations in return for new opportunities.

But it is in the near future where the promise of robo-advice may really open up.

There are already signs of what may come down the line as heavy hitters from the finance industry back robo-style start-ups. Two good examples come to mind:

● Stockspot, the robo-adviser led by Chris Brycki and backed by ETF magnate Graham Tuckwell is offering low-cost ETF-based share advice services.

● Ignition Wealth. This is another intriguing venture. The start-up backed by Count Financial tycoon Barry Lambert is making waves by opening up big-bank platforms that were previously exclusive to institutional investors.

However, perhaps the most promising target market for robo-advice just now is not in shares or cash but rather in the mortgage market.

In Britain, outfits such as Mortgage Gym are seriously disturbing the status quo with remarkable robo-offerings such as the “Two-minute mortgage finder”, not to mention the “15-minute mortgage documentation completion service”. Mortgage Gym calls itself the “world’s first regulated mortgage robo-adviser”.

In the US, Chase is reportedly planning to launch a self-service mortgage platform. However, unlike Mortgage Gym which is a start-up Chase can already boast a staggering 43 million user of its ­existing services.

Perhaps the most promising aspect of the Chase service is that it is designed to let the applicant track their mortgage application from the start to finish.

In our market, mortgage services such as Uno Home Loans, an ostensibly independent start-up which is actually owned by Westpac, is offering new low-cost mortgage finding services. Uno Home Loans, led by Vincent Turner, has caused quite a few ripples in the mortgage market, paying its staff salaries rather than commissions.

But Uno might just be the tip of the iceberg. It looks like the mortgage broker market is ripe for disrupters. UBS analyst Jonathan Mott recently estimated that mortgage brokers add $4600 to the cost of the average home loan. Moreover, the total value of mortgage broker commission in this market per annum was $2.4bn in 2015, the last year for which we have figures.

Mott made the powerful suggestion the service currently provided by an army of poorly regulated brokers could easily be displaced by robo-advisers — the sooner the better.