Robo-advice still has a long way to go and isn’t necessarily a significant competitor to the human financial adviser, says Business Health principal, Terry Bell.
Bell says that while tech has a major role to play in Australia in filling the adviser gap, it can’t do it all for everyone, noting that technology can help but it won’t replace the need for cultivated relationships.
He says that almost 20 years ago, the essential drivers for robo-advice were that the industry was struggling with too many clients, not enough advisers and a perceived mis-match between fees and value.
“Robo – low fees, no human, digital, the perfect solution for our new world it seemed at the time. Build it and they will come? Perhaps not!”
He believes that this same set of challenges exists today and the underlying problems remain.
…the solution as promised by robo-advice has yet to be fully realised…
Bell says the solution as promised by robo-advice has yet to be fully realised and Australia remains as a country faced with:
- A complex (and confusing to many) set of taxation, superannuation, retirement and social services systems
- The need for quality, professional advice remains as paramount as ever – clearly driven by the wealth transfer phenomenon
- The cost of advice remains a considerable barrier with ”value” seemingly proving illusory for many to grasp and appreciate. Rising, unrelenting cost of living pressures don’t help
“And yet as an advice industry there are insufficient numbers of advisers to serve these clients. With many of those advisers who remain now looking to exit over the next few years, it’s painfully clear that the estimated 1.1% net growth rate in adviser numbers (reaching 16,708 by 2029*) won’t be sufficient to serve the needs of so many Australians.”
Bell says there can be no doubt that tech has a major role to play in helping to resolve these problems.
Observations from the United States
He adds that observations from his firm’s 15+ years of hands-on experience working in the United States and that country’s robo journey can perhaps provide some pointers for today.
…even though assets under digital advice in the [United] States have now surpassed US$1 trillion, the robo revolution remains somewhat snagged…
Bell says that even though assets under digital advice in the States have now surpassed US$1 trillion, the robo revolution remains somewhat snagged.
“Profit is proving elusive – inflow is one thing, profitable inflow another. This has led to some providers increasing their fees, and in doing so, somewhat ironically, reducing one of their main points of difference (lower fees).”
He says other groups have chosen to withdraw from this particular channel, selling their client accounts to others – JP Morgan Chase and Goldman Sachs in the last year for example.
“And for those who remain, most seem to have adapted their business models – instructively by adding a human option to their offer. It now sits proudly beside their self-directed and advisor-led platforms. Clients like access to people even if they prefer to interact digitally.”
Bell points to robo learnings over the past years that include:
- It’s expensive to build, maintain and promote
- Really big scale is needed
- A longer-term timeframe and perspective is needed
- Underlying strategy is always ‘work in progress’ and it should be objectively and pragmatically re-evaluated on an ongoing basis. In the case of robo, while it was initially seen as the preferred method for younger clients and/or clients who initially didn’t have the money or appetite for fees … robo has seemingly morphed with older clients attracted to digital solutions
- Business models will need to evolve and adapt as circumstances dictate
- At the end of the day, ROI will govern – eventually determining if you stay the course, change your course or exit
* The Big Shift, Iress/Deloitte.
