To our mind, there seems to be a confusion between what is robo-advice and what is fully-automated investment advice.
In part, this is because the whole robo delivery system is new to Australia but also because there has been an unnecessary race to get systems in place and then let those systems’ delivery/fulfilment mechanism be finalised later.
A fully-automated advice system means that all elements are delivered in the one engagement. Too often, robo is turning into straight-through-to-a-person advice. This is not what the consumer wants and it’s not what savvy advisers need to offer.
The key features of a fully-automated service are:
• Transaction captures are accurate and complete;
• The paper trail never stops being electronic;
• Client confidentiality is assured because no external parties view the data;
• The investments are HIN-based, adding another level of security;
• Risk profiling cannot be amended/altered since it is non-discretionary;
• Statement of Advice (SoA), MDA agreements are generated and delivered automatically, with all KYC requirements fulfilled;
• CMA and trading accounts are opened automatically (i.e. within minutes), with all AML requirements accounted for; and
• As soon as investor funds hit the trading account they are invested automatically
Essentially, fully-automated systems must deliver on their promise, which is to be fully automated, with no human intervention whatsoever and exercise fast and accurate document delivery, as well as having excellent communication for the investor during the process.
Learning from the US
The local financial industry can learn from the success of US robo giants like Betterment and Wealthfront in the US.
Circa US$3 billion has been invested with these companies in the US over the past three years, which is huge growth.
The US has a history of being at the forefront of new and innovative investment mediums that Australian investors and advisers have adopted, such as ETFs and platforms. Over time, robo-advice will have a similar impact, but it won’t happen overnight.
Some HNW clients will use robo, as happened in the US
As in the US, the industry also has to accept that some HNW clients may use robo in non-advised investments. The experience in the US has been that it is not just smaller investors that are using these companies. Larger investors, who believe in passive investing, are also using them. This doesn’t mean, however, that they don’t value good financial advice and won’t pay for it; they are simple exercising their right to choose how their savings are managed.
Whether clients are wealthy or at the start of accumulating wealth, automated advice may be the advisers’ best ally. The good adviser will see how it can help them in the future to offer initial or deeper advice and not hinder the online investor at the outset.
Matthew Kidd, managing director, Omniwealth
