Ro­bots are able to rec­om­mend investment funds ac­cord­ing to your time­line, risk ap­petite and sav­ings goal, writes An­gelique Ruzicka

CityPress - - Tenders -

In the an­i­mated show The Jet­sons, Rosie the ro­bot cleans the fam­ily home; in the Ter­mi­na­tor movie se­ries, ro­bots are used to fight wars in the fu­ture. Us­ing ro­bots to help us in our daily lives once seemed a far-fetched no­tion, but now we’re au­tomat­ing ev­ery­thing from our cars to our TVs. How­ever, when it comes to get­ting fi­nan­cial ad­vice from ma­chines, is South Africa ready? The abil­ity to get fi­nan­cial ad­vice from a robo-ad­vice plat­form is pos­si­ble – Itrans­act re­cently launched Itrans­ac­tGO, an au­to­mated investment plat­form that is sim­ple to use. Through the Itrans­ac­tGO web­site, you get asked a se­ries of ques­tions about, among other things, your investment goals, your ap­petite for risk and what in­vest­ments you pre­fer, and the robo-ad­vice plat­form spits out a rec­om­mended batch of ex­change-traded funds, and reveals whether this bas­ket and the time­line you chose would be able to meet your goal.

You can ad­just your time­line, risk and the amount you save ac­cord­ingly un­til you meet your sav­ings goal.

Lance Solms, the head of Itrans­act, says: “Once it un­der­stands your profile, it will look across all the as­set classes like cash, bonds, prop­erty, do­mes­tic and off­shore eq­ui­ties – com­pris­ing more than 50 low-cost ex­change-traded funds for the most ef­fi­cient mix – and then com­bine them in such a way as to form a port­fo­lio that will best suit an in­vestor’s investment goal.

“It will not favour one as­set man­ager or fund over an­other – it will only pick the best funds for in­vestors. It will au­to­mat­i­cally re­bal­ance your port­fo­lio so that you never have to worry about the mix of as­sets you have cho­sen.”

Itrans­ac­tGO is dif­fer­ent be­cause it is in­de­pen­dent – there are no ties to a par­tic­u­lar fund man­age­ment house, such as Al­lan Gray or In­vestec. This, ac­cord­ing to Solms, is one of the rea­sons robo-ad­vice plat­forms have been met with scep­ti­cism.

Most robo-ad­vice plat­forms of­fer a par­tic­u­lar “house” view, and there are lots of as­set man­age­ment firms and banks that have an el­e­ment of “robo-ad­vice” bolted into their web­sites.

Ad­vo­cates of robo-ad­vice question the scep­ti­cism that in­vestors at­tach to the con­cept. They ar­gue that many South African banks are al­ready au­tomat­ing their ser­vices, de­vel­op­ing apps and dis­cour­ag­ing cus­tomers, by way of higher fees, from walk­ing into branches or us­ing the call cen­tres.

Get­ting ad­vice from “ma­chines”, whether through an app, chat­bot or robo-ad­vice plat­form, is just the fol­low-on from this, and hy­brid of­fer­ings also ex­ist.

With some firms, you can al­ready an­swer a se­ries of ques­tions through their web­site, sub­mit your risk profile, and the re­spec­tive fund house or bank will pro­vide you with a list of rec­om­mended prod­ucts – its own prod­ucts, of course. And this will be fol­lowed by a call cen­tre agent of­fer­ing ad­vice or a visit from a fi­nan­cial ad­viser.

There are ar­gu­ments for and against choos­ing to in­vest with ac­tive fund man­agers. Some be­lieve that a per­son and his or her cho­sen robo-ad­vice plat­form could do much bet­ter than a fund man­ager pick­ing com­pa­nies or other funds to in­vest in.

Ac­cord­ing to re­sults pub­lished by Pro­fileData (FE An­a­lyt­ics) and Morn­ingstar, ap­prox­i­mately 70% of fund man­agers who in­vest in eq­ui­ties un­der­per­formed the mar­ket over one, three, five and 10 years, sug­gest­ing that many in­vestors end up in funds or port­fo­lios that do not suit or meet their investment goals.

So why aren’t we all us­ing robo-ad­vice plat­forms? De­spite the un­der­per­for­mance of fund man­agers, South Africans haven’t lost their love for them or for the fi­nan­cial ad­viser. The other rea­son in­de­pen­dent robo-ad­vice plat­forms haven’t quite taken off yet is be­cause they are quite ex­pen­sive to build and main­tain.

Eu­gene Ma­ree, a di­rec­tor of Wealth­port, says: “Client ac­qui­si­tion cost is high. You have a lot of ad­ver­tis­ing and brand costs.”

But the fund man­age­ment houses don’t have the same fi­nan­cial con­straints, and their mar­ket­ing bud­gets are high enough to keep their busi­nesses top of mind.

Two of the main is­sues that peo­ple face with the fund man­age­ment in­dus­try are cost and trust.

Ac­cord­ing to a sur­vey con­ducted by 10X In­vest­ments, peo­ple don’t trust the fi­nan­cial ser­vices in­dus­try.

Re­fer­ring in par­tic­u­lar to robo-ad­vice plat­forms that are trans­par­ent about their cost­ings and al­low for peo­ple to rate and com­ment on the ser­vices of­fered, Steven Nathan, CEO of 10X In­vest­ments, says: “The trust and gov­er­nance in the in­dus­try is miss­ing as peo­ple aren’t see­ing ex­actly what they are buy­ing – the cost of it – and there isn’t trans­par­ent com­mu­ni­ca­tion. But if you put some­thing on­line that any­one can look at and it’s peer re­viewed, then you can start to build trust.”

But this won’t spell the end for fi­nan­cial ad­vis­ers en­tirely. In­ter­act­ing with ro­bots – be they chat­bots, or web­sites backed by fancy al­go­rithms that can spit out a num­ber and fund rec­om­men­da­tions – ap­pears to be a gen­er­a­tional thing for now.

Wy­nand Smit, CEO of con­tact cen­tre so­lu­tions and op­ti­mi­sa­tion com­pany Inovo, says: “By 2025, 75% of peo­ple will be Gen­er­a­tion Y and only 12.6% pre­fer not to use a phone, so their en­gage­ment is through phones and so­cial me­dia. So it’s also driven by their needs.”

Nathan says: “Peo­ple with larger amounts of money and who are older would still want the hu­man en­gage­ment. Ad­vis­ers still play an im­por­tant role in they get peo­ple to save. If there are no ad­vis­ers, you’d rely on ev­ery­one proac­tively go­ing on­line and do­ing it them­selves. So I think there is role for both.”

While the fi­nan­cial ad­vis­ers still have the older gen­er­a­tions and those who have more com­plex goals and port­fo­lios on their side, they would be do­ing them­selves a dis­ser­vice if they ig­nored or re­jected robo-ad­vice plat­forms all to­gether.

Ma­ree sees no rea­son fi­nan­cial ad­vis­ers couldn’t adapt their busi­ness to ac­com­mo­date robo-ad­vice plat­forms. He points out that most fi­nan­cial ad­vis­ers put their client’s in­for­ma­tion into fancy bud­get cal­cu­la­tors and other tools any­way.

“If fi­nan­cial ad­vis­ers saw it [robo-ad­vice] as an en­abler rather than a com­peti­tor, robo-ad­vice would work. Where good ad­vice is given, robo-ad­vice won’t be a threat.”

In the US, Bet­ter­ment and Wealth­front of­fer au­to­mated investment ser­vices to clients, and in­ter­na­tional bank HSBC is also throw­ing its weight be­hind the move­ment.

To sur­vive, some com­pa­nies are of­fer­ing a mix of robo-ad­vice and ad­vice from ad­vis­ers, but many com­men­ta­tors be­lieve that robo-ad­vice is the way of the fu­ture.

The good news is that it should be cheaper and will help to pro­vide fi­nan­cial ad­vice to the masses.

“It’s more about how tech can help peo­ple make bet­ter investment de­ci­sions. It’s very hard for peo­ple to get ad­vice as you need to have a cer­tain num­ber of as­sets [usu­ally more than R1 mil­lion] be­fore an ad­viser, who has the time and ex­per­tise, will come and see you,” says Nathan.

With such ben­e­fits, it’s only a mat­ter of time be­fore South Africans get into the swing of things.

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