There is no doubt that there are a number of barriers facing those who need or want financial advice. However, there are also ways of dealing with these barriers, with technology — via digital advice — having a crucial role to play.
Let’s be clear about what we mean by “digital advice”. The term is often used as a synonym for “robo-advice” but we see them as very different. In Australia, robo-advice refers to what is typically an online-only, investment-only, (usually) general advice proposition featuring a risk tolerance engine and a recommended investment portfolio. In other words, a relatively narrow offer when considered against the breadth of a financial planner’s scope.
Digital advice, on the other hand, is a digital channel that provides regulated personal advice on many of the topics financial planners advise: super contributions, insurance, investments, and retirement income.
By addressing each of the barriers below, digital advice allows financial advice providers to deliver the benefits of their offer to a much larger audience than can be reached today.
The main barriers include:
Cost
The average cost of accessing advice from a financial adviser today has been calculated at around $3,500 a year — significantly higher than the $500 that research shows most Australians are willing to pay.
There are a number of drivers behind this high cost of advice, many originating from the regulatory response to the Royal Commission. One of the solutions to bring costs back down is using digital advice technology to create greater efficiencies and economies of scale.
With digital advice, financial institutions can reach more customers in a compliant, economic, and scalable way, significantly reducing the cost of delivering that advice.
Complexity
A common theme in the financial planning profession is that many people don’t think they have enough wealth or financial complexity to justify seeking advice. While they may like the idea of getting advice for a specific situation, such as insurance or building superannuation — and indeed would likely benefit from it — many advisers have been forced to set minimum levels of investible assets to access their advice, making it cost prohibitive for them to deliver advice on one area. This reinforces the perception that advice is only for the wealthy.
Digital advice, however, is ideally suited to delivering single-issue personal advice to mass affluent and mass customer segments. Delivering advice on superannuation investment options, contributions, investing outside of super, or taking up insurance for a specific life event or phase, is all easily achieved through digital advice.
Confidence
Many consumers lack the confidence to engage with traditional advice channels and can be reluctant to share their financial situation.
Financial institutions can now offer compliant digital advice solutions which allows consumers to access personal advice in private, and still have access to human adviser support as and when needed.
Compliance
As we all know, the compliance requirements that financial advisers must meet, have made it increasingly time consuming and expensive to provide financial advice.
Digital advice technology has the ability to improve compliance outcomes, by ensuring streamlined and fully auditable data collection, consistent recommendations and experience, and guardrails which limit the scope for idiosyncratic behaviours and conduct risk.
Convenience
If people can’t access the type of advice they want, in a way and at a time that suits them, the chances are high that they simply won’t access it all. In the modern world, this means being able to access advice as they sit on the bus on the way to work, or as they relax in the evening in front of the television, or on the weekend — not between the hours of 9 to 5, Monday to Friday.
Digital advice removes the barriers created by the “five Cs” by helping to make advice affordable and easy to access, not only in time and location, but also in terms of privacy for those with money sensitivities.
Financial institutions and their advisers can be confident that the adoption of digital advice not only results in efficient allocation of resources, and consistent and quality advice outcomes for consumers, but will also increase people actively accessing advice by removing common barriers.
Craig Keary, CEO Asia Pacific, Ignition Advice
Can algorithmic advice lead to “cookie cutter” advice? What do you think?