Robo-advice is not the future, Rice Warner says
Many financial institutions believe robo-advice will be the solution to guiding customers, but there are a number of challenges in delivering this outcome, Rice Warner says.
According to the firm’s Insights blog, super funds and financial institutions are looking at robo-advice as a way to control the quality and consistency of advice and deliver it at a low cost.
While this is a reasonable view, there are some challenges, Rice Warner said.
“Online tools such as retirement calculators will always be a quick and ready reckoner used at a point of time, but, most often, do not lead to activity to purchase or to change strategy,” the firm said.
“The reason for this is the difficulty in summarising complex issues based on limited data into a simple algorithm – the maths might be accurate but the input often is inadequate.”
Rice Warner added that robo-advice is also used to encourage consumers to seek traditional advice.
“The theory is that interested users will come to appreciate the complexity and seek advice or will gain an understanding of their true position (even if incomplete) and seek advice to improve it,” the firm said.
“However, this follow through usually does not occur and less than a fifth of Australians ever seek personal financial advice.”
Rice Warner believes that future advice tools will seek to replicate the behaviour of human advisers.
"All the components for a modern advice system are used in the industry and many large superannuation funds have begun to work out how to combine them to deliver a comprehensive advice package to the mass market,” the firm said.
“The successful ones will evolve by using technology and financial advisers efficiently – and will move away from the pack in delivering value for members.”
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