Money advice to the masses
Would you trust a robot to manage your investments?
Robo-advice is tipped to be the big trend of the next decade in the financial services industry, disrupting financial advice in the same way Uber has turned the taxi industry on its head and Airbnb has changed the way we book accommodation.
Across the ditch, National Australia Bank is this month rolling out NAB Prosper, the first robo-advice tool from a major Australian bank. It offers free general advice on retirement savings and insurance and will be given to 40,000 people.
There are plans to eventually offer the service to all 3 million of NAB’s online banking customers.
There is US$15 billion ($24 billion) invested through robo-advice internationally but that is predicted to increase to US$255b in the next five years.
The big New Zealand banks say they have no immediate plans to follow suit.
However, it is only a matter of time before robo-advice becomes widely available in New Zealand, said David Boyle, group manager of investor education at the Commission for Financial Capability.
He said robo-advice would suit investors who did not want to pay for a full financial plan from an adviser, or those who wanted to take a do-it-yourself approach.
‘‘I generally get the sense that people are starting to think more around this and it will mean they can get a level of advice that may not be able to be obtained through traditional mechanisms.’’
The number of authorised financial advisers (AFAs) in the New Zealand market has dropped since the new rules.
Only AFAs and advisers who work for a qualifying financial entity, such as a bank, can give advice on investments.
During the year to the beginning of September, 91 new advisers were authorised but 122 terminated their authorisations. There are now 1842 AFAs.
Boyle said there were nowhere near enough advisers to cater for the 2.5 million KiwiSaver members who might need advice on their accounts.
He suggested banks and other big KiwiSaver providers could offer a robo-advice service for people who wanted help with their investments but did not need face-to-face advice.
‘‘Demand will grow as people see the benefit of regular saving through KiwiSaver and think, ‘What else can I do?’’’
ANZ head of wealth John Body said the bank was continuously looking at ways technology could be used to help humans provide better financial advice.
But he did not expect technology to replace advisers. ‘‘At the end of the day it’s a personal and emotional relationship when you are working out how much to save and how to invest it.’’
Bank of New Zealand, which is owned by NAB, also said it had no immediate intention of following its Australian parent’s lead.
BNZ head of digital Stephen Bowe said: ‘‘We’re not looking into robotised advice at the moment, though we’re constantly looking at how we can use technology to enable customers to manage their finances better and help people be good with money.’’
Michael Littlewood, a former co-director of the Retirement Policy and Research Centre, was involved in developing an automated financial planning tool for Fletcher Challenge employees 20 years ago, called Planit.
He said he could see potential for Planit in the market now, and was interested in exploring whether it could be updated to become a web-based application.
A review of the Financial Advisers Act, which is currently under way, may make it easier for providers to offer robo-advice.
Financial Markets Authority spokesman Andrew Park said the rules would need to be made flexible enough to enable innovation and adaptation.
‘‘Access to advice is fundamental to the success of the New Zealand markets, building people’s confidence in their ability to invest,’’ he said.
It seemed logical that advice services would innovate and regulation needed to be able to adapt.
Financial adviser Robert Oddy said his industry risked being swept aside if it did not keep up.
‘‘The future is enormously exciting for those who want to capture it, but destructive for those that don’t.’’