Ignition Advice founder and director Mark Fordree said while the initial wave of robo-advisers in Australia five years ago had failed to make “a big impact”, the most successful digital advice providers were increasingly partnering with large institutions rather than starting from scratch.
“If you look at the US as an example, the successful robos like Wealthfront and Betterment have managed to build a large customer base with a huge amount of capital at a high cost of customer acquisition in a huge population,” Mr Fordree said.
“In the Australian context we haven’t had either the large institutions or well capitalised new players come to this market – we’ve seen smaller players who have got mixed levels of success, but none of them made a big impact.
“The existing institutions who already have customers and their data, they’re the ones with the opportunity, and there’s no greater example than Vanguard – they have wiped the floor with Wealthfront by monetising existing customers into their own product.”
Apart from often not having the customer base necessary to grow fast enough, Ignition chief executive Mike Giles said the technology offerings of early robo-advisers had also not adequately incorporated a hybrid model with the option to seek out a human adviser when things went wrong.
“In 2015 digital advice was all digital, there was no collaboration. There was no path if you fell outside the rules [of the algorithm] or if you didn’t understand,” Mr Giles said.
“We hadn’t appreciated that human element – the secret is in the mix of advisers and digital.
“Full advisers specialise in upper end complexity, they are expensive and don’t scale, but they target that market. Pure robo where we used to be in industry fund land is great at simplified stuff but if that isn’t enough for you and you get lost the education isn’t customer centric – you fall out and there’s nowhere to go.
“With this hybrid model, there’s a place to go so it increases the conversion.”
Mr Giles said it made sense for hybrid advice to take off as a solution to the current supply and demand issues in the advice market, with increasing numbers of advisers leaving the industry and the cost to serve for those who remained going up.
“For institutions, the challenge is to give advice to millions of customers, and based on 25 hours per piece of advice, they need 10,000 advisers per million customers, so it just isn’t scalable,” he said.
“Ignition provides a set of digital advice services that focus on the hybrid model, so some people can go all the way through or they can hop off and talk to an adviser or they can get pushed through to a face to face adviser. We try and take the weight off the advice teams by having the clients do a lot of the work on a self service basis.”
How does Robo advice avoid all conflicts of interest, selling products they align with ?
How does Robo advice take into account the longer term needs of the customer ? (not clients)
How does Robo advice make sure the clients truly understand the advice and all the fees ?
I fail to see how Robo advice can meet FARSEA, it’s near impossible for Real Advisers but definately not possible for Robo.
Robo Advice was always I pipe dream. Clients always want human interaction and to eyeball their Adviser. Robo advice as a tool for Advisers is probable. Lets protect our Advisers and not throw the baby out with the bath water.
I agree 100% . . . however, I fear it is now too late to “protect our advisers” – big business wants them gone for reasons best known to themselves.
Actually, a lot of advisers DO scale. Its how we survive. Robo Advice does have a place, particularly for ten percent of the community who think advisers (& other professionals) should work for free, even though they don’t themselves. They are welcome to it.