Rise of the robot advisers

After the royal commission’s report, a new kind of advice is stepping up to show investors and savers the way

FOLLOWING the Hayne banking royal commission, many Australians are understandably concerned about where they can find good quality investment advice.

Commissioner Kenneth Hayne was scathing about the quality of some major investment advice groups, which were generally associated with the big banks.

For many it begs the question: “Who can I trust with my money?”

We think two things are likely to happen. There will be a shift away from the big institution-owned financial advisers to smaller independent firms which have a better connection with clients. And there will be a shift to online advice platforms, or so-called robo advisers.

We’ve always said your best investment is good advice. We have also said that, while you can delegate responsibility for your money to an adviser, you must never surrender that responsibility to them.

BE INFORMED

In other words, yes, get an adviser but you must also take the time to always be fully informed about what decisions are being made because the buck has to stop with you. When choosing an adviser, make sure you complete the right due diligence on whether they are right for you, and that they have appropriate qualifications.

We like Adviser Ratings (adviserratings.com.au), which assesses individual advisers and allows clients to comment and rate the service they receive. It’s a sort of TripAdvisor for financial planners.

Many Australians are also using online digital advice platforms, or robo advisers, to better manage their money and educate themselves on financial planning options.

Following the royal commission recommendations, access to advice may get harder and more expensive.

Currently, the average client of a financial adviser has a portfolio valued about $600,000 and pays fees of 0.6 per cent ($3600) a year.

Online platforms can be an alternative for those who have smaller portfolios or those

wanting more autonomy.

ROBO VERSUS HUMAN

Robo advice can sometimes be referred to as smart tools, personal finance applications, or digital advice. The need for all these terms is because there is a wide range of services provided and they do many different things. While these types of platforms are viewed as a disruptor to the traditional advice industry, in reality, it is helpful to both advisers and investors, and given the nature of our “always on” society, these tools are always available. They may not be for everyone, but there are actually

several potential benefits to putting your faith in a robo adviser as opposed to a human.

The first is obvious: They are cheaper than a traditional fund manager because you’re not paying someone to look after your cash.

It’s a pretty simple equation when it comes to investments; the less you pay in fees, the more money will end up in your pocket.

Of course, cheaper doesn’t always mean better.

Secondly, there are some things machines can do better

than humans. In particular, a computer can turn off emotional and behavioural bias, meaning it will never be clouded by emotion or greed.

Robo advisers simply make objective recommendations on where to invest based on proven investment theory and the instructions of what and how you want to invest.

Online advice platforms have a range of useful tools to help you build a plan of what to do. Many also use exchange traded funds (ETFs) as their investment solutions.