The humble robot we grew up thinking was science fiction in the Jensen’s is now giving out financial advice… well, in part at least. Welcome to the world of robot advisory!’
The growth of what has become known as ‘robo–advice,’ within the ever expanding financial technology sphere has caused many financial advisors to question what role it will play in the future. The term is somewhat slippery to define given its diverse focus, but in short, robo-advice is an online automated investment advice system.
Robo-advice covers a multitude of functions from basic DIY share execution, through to managed discretionary accounts (MDA); a set and forget approach where you entrust your ‘robo – advisor’ to invest based on the parameters you define.
It offers an alternative to the traditional financial advice model, which can be price prohibitive for younger investors, whilst still giving them the satisfaction of being directly involved with their money management and investment decisions.
Many of the big players in the fund management arena are parting with large amounts of capital to either build or acquire robo based platforms with the likes of Vanguard, Blackrock and Fidelity eager to claim their piece of the pie leaving some advisers worried.
They see robo-advice as a threat, the Skynet of the advisory sector, a danger to both their client base and prospective future revenue. Many claim a lack of regulation and compliance inequality. ASIC has evidently seen the need for more stringent guidelines and adequate regulation, launching a taskforce to evaluate the sector and how it intends on meeting its best interest fiduciary duties.
In reality however, robo-advice is not a direct replacement or substitute for holistic financial advice. It is actually more a complementary offering, a tool for innovation aimed at younger self-directed investors and those who want no-frills, cost effective investment advice.
The automatous advisor does not consider a client’s goals or objectives, nor does it possess the intuitive thinking or cognitive reasoning necessary to build a relationship with a client. These are the building blocks of the professional services sector which are unlikely to be done away with in favour of an algorithm based advisor.
By contrast, many within the industry are welcoming the robot revolution, seeing robo-advice as a launching platform to advisers, with the end result a likely mix of personalised tailored advice executed with the precision and efficiency of technological advance – the machine.
While robots are unlikely to account for or replace the human side of advising, they will inevitably form an integral part of the financial advisory landscape going forward.
In the meantime, if you would like a free initial financial planning consultation from a (human) Accru advisor, please get in touch!
By Joseph Ficarra, Accru Melbourne