Robots jockey with CPAs as new faces of financial advice

The remarkable breakdown in trust is triggering promising new models.

Alex Malley is chief executive of CPA Australia. Picture: Adam Taylor

The remarkable collapse of trust in the financial advice sector capped by the recent transgressions at major banks has paved the way for new players to enter the sector with new models that offer the prospect of better or cheaper advice.

This week’s dramatic entrance into the market by the powerful accountant’s organisation CPA — which is to launch a new company that will support and direct the CPA’s army of accountants into the financial advice arena — comes on the back of the rising power of so-called “robo-advice”. Automated advice is a radically new model, which is set to shred costs faced by investors who deal with conventional ­services.

These two parallel developments are significant — and ­potentially very useful — to ­Australian investors at all levels so let’s look at them separately.

● It’s a measure of the influence the newly minted CPA ­Australia Advice service will wield that its launch yesterday was attended by ASIC chairman Greg Medcraft. It’s no coincidence that only days ago Medcraft openly aired his frustration with the banking industry, calling it ­“absolutely appalling” when it came to co-operating with the regulator.

Indeed, CPA chief executive Alex Malley, who has built an unprecedented profile as the head of a professional organisation, is not a man to do things by halves. Malley says he plans to hire a staff of more than 40 to kick off this new service and it has come about as a direct response to public despair at the endless conflicts of interest inherent in our mainstream ­financial advice arena dominated by CBA, ANZ, NAB, Westpac and AMP.

Malley says the new service will set a benchmark for independent fee for service advice that rejects commissions. The concept is a clever move that leverages the relatively untainted reputation of the accountancy profession in financial services and allows CPAs to move en masse into financial advice using a framework to be created by the new company.

For those who are determined to have independent advice and are willing to pay for it upfront, the new model — though untested — offers a fresh alternative. Of course, no model is perfect: the issue for the CPA’s attempt to enter the financial advice sector on high moral ground is that it will inevitably be accompanied by higher costs. It takes three years to become a CPA, while it is possible to become a rank-and-file ­financial adviser in a matter of days — CPAs will have to be dearer.

● At the other end of the spectrum from the CPA model is “robo-advice”, a form of advice that will probably affect more ­investors more often in years to come. This is the automated minimal engagement financial advice model, which is taking the US by storm and will hit our ­market in a significant way very soon.

In the US the business has been led by some very successful start-ups such as Betterment and Wealthfront along with well known incumbents in the index funds industry such as Vanguard. The early sign in Australia is that for better or worse the early movers are banks — the very same institutions that have lowered the level of financial advice in this market to the second-rate “product sales” business it has become.

Many people might initially bristle at the idea that you can fill out online forms and a computer algorithm can spit back a financial advice template for you. But with the arrival of exchange-traded funds in the market the ­construction of off-the-shelf portfolios for “the average investor” are much more feasible. (For more on ETFs see Victoria Thieberger’s feature.) After all you would surely be better off with ­robotised off the shelf advice that is ­unbiased and passable compared to exposing your assets to a ­commission driven salesperson who may know very little about the investment markets.

One of the earlier adopters in the local market appears to be ANZ which has publicly stated its intention to enter the market in the near future when it has ­sufficient modelling completed. The bank recently raised eyebrows announcing a joint venture to manufacture ETFs with specialist ETF Securities.

ANZ’s CEO of wealth Joyce Phillips, clearly aiming to sidestep the crude moniker of robo-advice, recently said the bank was working on the release of what she described as “a virtual adviser capability” in the local market.

And in the highly competitive world of the big four banks if one bank is working on it — they all are. Moreover, new services which offer a lower cost, less-engaged model such as the application process for products such as BT Lifetime Insurance (a Westpac owned service) are ­already effectively very close to a robo-advice model.

Neither of these new advice models will be perfect, but they may both offer a much better ­service to existing Australian ­investors than the tired and compromised models that dominate the market now — and that can only be a good thing.