Kiwi Wealth has signaled its digital ambitions with the launch of two new services in the space of a week.
The government-owned financial services firm switched on both its direct-to-consumer US share investment platform, Hatch, and the long-awaited KiwiSaver robo-advice system over the last fortnight.
Hatch, which emerged out of the Kiwibank ‘fintech accelerator’ hub, offers NZ investors access to US stocks – including over 450 exchange-traded funds (ETFs) – at discounted brokerage rates. The platform incorporates a currency spread of 0.8 per cent while also enabling investors to buy fractional shares – the first to do so in NZ, according to Hatch head, Kristen Lunman.
Lunman said Hatch was aimed at self-directed investors who want to buy US shares but have been “hampered by a poor user experience and prohibitive fees”.
Hatch would roll out other services over time, Lunman said.
In a statement, Hatch says: “We’re starting with investments, but we have bigger plans to change the landscape of finance in New Zealand.”
Meanwhile, Kiwi Wealth officially ushered in the robo-advice age after releasing its first-to-market system into the wild.
Built on the back of the group’s class-advice ‘Future You’, the enhanced version enables users to create and buy investment portfolios after determining an appropriate risk profile.
Ramesh Naran, Kiwi Wealth digital strategy lead, said the robo-advice system – the first to be offered in NZ under a regulatory exemption – is being tested on a small group of 500 or so of the firm’s KiwiSaver members.
“We’ll get some qualitative and quantitative feedback from [the first users] before rolling it out across our KiwiSaver membership,” Naran said.
For now, he said the personalised advice iteration of Future You is limited to making portfolio recommendations targeting member retirement goals based on KiwiSaver and NZ Superannuation income assumptions in a process that takes between five to 10 minutes.
Future versions of Future You would likely take into account other assets held outside KiwiSaver, Naran said.
However, he said even as is, the new Kiwi Wealth robo-advisory service represents a major step up from the class-advice offering.
Naran said the software-build required a much greater level of sophistication to include both the ability to incorporate personal goals and comply with specific governance and regulatory standards.
Under the Financial Markets Authority (FMA) exemption for the current advisory law, robo-advice providers have to meet standards that apply to authorised financial advisers as well as demonstrating technical competence.
Last October, Liam Mason, FMA regulation director said: “The exemption conditions and our ability to monitor providers will help us to manage risks and ensure consumer protection safeguards are in place.”
According to Naran, the Kiwi Wealth robo-advice governance includes regular review by an oversight committee of a monthly sample of automatically-manufactured investment plans to ensure the algorithm is delivering “suitable advice”.
The Kiwi Wealth risk and compliance team would provide another layer of compliance checking on the robo-advice system, he said.
Naran said to begin with the Future You personalised advice algorithm was operating on a fixed basis rather than adapting under an ‘artificial intelligence’ structure.
“But I can definitely see [robo-advice] is heading to AI soon,” he said, citing the huge advances in the technology showcased at the recent InVest 2018 Conference in New York.
The difference between the inaugural InVest event three years ago and the most recent conference reflected how far the robo-advice business had advanced in a short time, Naran said.
“When I went to the 2015 conference there were maybe 300 people in small room,” he said. “This year there thousands of people in a huge auditorium.”
While the technology was impressive, Naran said the general consensus at InVest suggested that robo-advice would best work under a ‘hybrid’ model, coupling humans with machines.
“The leaders in robo-advice agree that people don’t see robo-advice as a binary thing,” he said in a release. “As we continue to develop our robo-advice platforms, we’re working out what aspects of the financial advice experience can best be provided by technology and what can be best provided by humans.
“So as robo-advice becomes more mainstream, human financial advisers will become more like financial behavioural coaches, rather than being replaced.”
The Kiwi Wealth system includes the ability to contact a human financial adviser at any point of the process.
Naran said the recent closure of several direct-to-consumer robo-advice ventures reflected an industry trend of incumbents working with technology firms rather than being replaced by them.
Earlier this month, UBS in the UK shut-down its SmartWealth platform joining US firms Hedgeable, WorthFM and LearnVest as robo-advice casualties in 2018.
“I visited Hedgeable when I was in New York,” Naran said. “It’s called Hydrogen now and it sells plug-in services – such as robo-advice and on-boarding systems – to the industry.”
Despite the changing industry dynamics, he said current projections show that by 2022 more people globally would be getting advice from robots than humans.
“That tipping point is not far away.”
Nikko Asset Management is expected to join Kiwi Wealth in the NZ robo-advice space within a couple of months after earning an exemption in August. Robo-advice will be formally legalised under the Financial Services Legislation Amendment Bill, due for a third reading shortly.