Rachel Strevens, founder of NZ fintech pioneering firm, Invsta, explains why robo-advice served up with user-friendly digital tools and human connections could boost financial literacy, consumer outcomes and advisory business options…
One of the key themes that emerged out of the recent Financial Services Council (FSC) New Zealand Generations Conference was the issue of financial literacy and how to develop this with customers to promote better saving and investing.
A recent report commissioned by the FSC indicates that Kiwis who get professional advice receive 4% better investment returns on average. The report notes that not only do the advised invest and save more, but they also rate their financial and overall holistic well-being higher than unadvised people.
As the FSC survey highlights, investors who have improved their financial literacy clearly appreciate the intangible benefits that brings including a sense of freedom, greater peace-of-mind, more control and confidence.
However, there are still many New Zealanders – particularly KiwiSaver clients and the growing cohort of mass-market investors – who do not have access to advice and struggle to see the correlation between financial literacy and holistic well-being. The FSC research found that many unadvised investors think that advice is too expensive, or they don’t have enough wealth to justify professional help: to date, financial services providers have also been reluctant to cater to such ‘lower value’ clients for the same reason.
But it’s becoming clear that technology can help financial services firms address this ‘advice gap’ without increasing their overheads. With a smart combination of user-friendly digital systems, linked up with human advisor support for those who want it, financial services businesses can now offer cost-effective advice to a broader range of individuals while creating potentially life-long advisory relationships and improving financial literacy across the country.
Robo-advice to lead the step change
Still in its infancy in New Zealand, robo-advice is set to be one of the biggest disruptors to the financial services industry. Incumbent financial services providers in New Zealand, though, have veered between enthusiasm and scepticism on the role of digital advice even as the evidence offshore suggests that such AI-driven technologies are already making an impact.
For instance, US-based robo-advisors Betterment and Wealthfront both experienced double-digit growth during the coronavirus crisis when consumers were forced to rapidly adapt to the ‘new normal’ way of doing things online. The offshore examples of Betterment and others have shown that technology can radically improve access to advice for larger audiences while enabling providers to profitably service a wider range of investors beyond the typical high net worth client base.
Technology, however, is only part of the solution. The recent experience in offshore markets indicates that a pure robo-advice business model works well for retail investors who are simply looking to dabble in investment markets. Robo-advice can’t now – and probably never will – replace the coaching, emotional support and wisdom offered by human professional financial advisers.
The answer for providers looking to capitalise on the cost-saving and audience-expanding benefits of robo-advice is to adopt a hybrid approach that offers a seamless link between the digital experience and the human touch.
With a robo-advice system providers can streamline the client onboarding and information-gathering process. At the same time, clients can use the robo-advice service to improve their financial literacy and make better decisions on how to manage their money – but only up to a point.
Under a hybrid approach, investors should have the option to easily contact a financial advisor for further help and/or the advice firm can proactively contact robo-advice clients to offer a more personalised service.
Robo-advice can help clients take their first investment steps and address the initial advice gap but access to ongoing professional advice and engagement lifts the service up to the next level.
How digital tools can educate and inspire
Financial providers typically focus more on the core AI-driven systems when considering robo-advice options but the quality of associated digital tools is equally important to ensure the process is both educational and engaging for end-users.
By carefully selecting the best of these digital tools – such as calculators and dashboards – and placing them directly into the hands of investors, financial services firms can significantly enhance the robo-advice user-experience.
Access to easy-to-use, relevant online tools would be particularly important for investors during times of market turbulence. For example, if such tools were more freely available to Kiwisaver clients during the recent Covid-induced market unrest, perhaps we would have seen less switching between funds.
Opening up access to digital financial calculators will enable investors to better-understand their current and future financial situations by tracking their goals more explicitly and forecasting the tangible value of their current investments. Combining calculators with visual investment tracking dashboards and up-to-date fund and market performance reports, should both educate clients and inspire them to stay on track with their investment goals – even during periods of extreme market volatility.
As clients build trust in digital tools, more providers will also learn how to benefit from leveraging the speed and efficiency of these new technologies.
A hybrid robo-advice model, supported by digital tools, paves the way for providers to focus on playing a more educational role and bridge the financial literacy gap. The need for advice is stronger than ever as the next generation of investors look to navigate a post-pandemic world and seek out information to improve their financial wellbeing.
Fintech will help to illuminate the financial and holistic benefits of professional advice, ensuring its relevance for the next generation of investors.
Get the latest report from Invsta for comprehensive insight into the top emerging technology trends for financial service providers: https://www.invsta.com/2020-report-download
Disclaimer: Rachel Strevens is the CEO and Founder of Invsta. This article is intended to provide information and does not purport to give business advice.
Invsta is a B2B fintech company that provides a range of white label modules and interface solutions for wealth advisers, fund managers and KiwiSaver providers. Invsta’s digital solutions are focused around 2 core areas: providing an interactive and engaging online client experience, and improving back office efficiencies. Through their solutions, they’re helping companies to reduce costs, improving access to financial products and advice, and delighting investors with ease of use and digital engagement.