Sophisticated investors aged 60 and over are among the fastest growing adopters of ‘robo’ advice globally and Australia’s self-managed superannuation fund market will be the next frontier for automated advice of various types, according to a report by financial services consultancy FinDigital and robo advice newcomer Ignition Wealth.
The ‘2015 Automated Investment Advisors Global Market Review’, to be published this week, found that while robo advice models naturally appealed to younger people who have grown up with technology and typically had smaller sums of between $20,000 and $80,000 to invest, they were also increasingly popular with investors aged 60 and over with substantial wealth because they offered greater transparency, control, lower fees, more flexibility, and a better customer experience than traditional advice models.
Robo advice has created increasing interest around the world in recent years, although there remains some controversy as to whether it is really ‘advice’, given the lack of knowledge of the client. Nevertheless, it seen as the only way to reach the mass market to assist in their investment decisions given the high cost of personal advice.
Former NZ Treasury policy analyst, Ian Dunbar, FinDigital managing director, said robo advice providers globally were gradually taking market share away from existing wealth management firms but they were primarily targeting the large number of investors who did not seek financial advice.
“Given the large number of Australians who do not seek financial advice, there’s clearly an opportunity for the local robo advisory market to develop in a similar manner to countries like the United States and Canada, and parts of Europe, which have experienced explosive growth in the last five years,” he said. “Robo advisers also operate independently from product manufacturers which is a major attraction for many investors.”
Robo advice was not a threat to financial planners who had an ongoing high-touch relationship with their clients but rather a potential opportunity to reach a new audience, he said.
The report, which reviewed 45 robo advice offerings, mentioned examples where robo advice models had been white-labelled by financial planning and wealth management businesses. It concluded that savvy operators were increasingly looking at ways to leverage automated advice to deliver a low cost, scaled advice offering to the mass affluent. The report stated that robo advice was one way to recruit new and potential clients with lower account balances because some providers did not require a minimum investment amount or charge fees until a customer account balance reached a certain amount.
“There’s an opportunity for financial advisers to capitalise on the robo advice trend by white labelling an existing solution and offering it to customers who aren’t ready to engage a planner but who want some limited investment advice,” Dunbar said.
“The adviser can be alerted once a client’s portfolio reaches a certain size and they may need more comprehensive financial advice. It’s one way to provide a low cost, scaled advice solution to more investors.”
Mark Fordree, Ignition Wealth CEO, says that robo-advice represents the adoption of digital innovation and technology into the advice industry. “The advice industry globally is merely seeing the same digital trends that have previously disrupted industries such as media and travel”, he said.
“The adoption of technology into the advice industry should be seen as complimentary to the existing advice channels, offering the opportunity to lower costs and make advice accessible to more Australians”.
The full report is available to FinDigital clients and selected parties. Contact: ian.dunbar@findigital.com.au
* Greg Bright is publisher of Investor Strategy News (Australia)