Robo advice can deliver the goods at a lower cost

TRADITIONAL, MULTI-TOPIC comprehensive financial advice (often an 80- to 120-page document) has become unaffordable for many investors. Fees can start at around $4000 for the initial advice, and the same again each year if that advice needs to be regularly reviewed.

An alternative has been developed using technology to deliver affordable advice, created by an algorithm, which works by taking data or information the client inputs and interpreting that information against several pre-defined rules. These rules tell the algorithm what to do with the information, such as perform a calculation or compare it with other data. The algorithm has another set of instructions that tell it what to do with the outcome of those comparisons and calculations and those instructions essentially form the “decision making” basis of the advice. This type of advice is often referred to as robo advice.

Robo advice works by using an algorithm that has benefits in addition to the ability to provide advice at scale and at an affordable cost. This advice, however, is not of the (complex) comprehensive style, but rather, “single topic advice”. For most of the population – the 85% who earn less than $135,000 a year – this may be more suitable: accessing advice when you need it, one topic at a time, at a price you can afford.

There is a trend to use technology for either fully “client-led advice” where there is no adviser involved or, alternatively, a “hybrid digital-human” experience.

The former is designed to deliver affordable advice covering single topics plans. Each plan typically costs less than $300 including GST – which research tells us is the price point acceptable to consumers. The latter is for those with complex situations who don’t mind doing some of the work using the technology, with the final advice validated by the adviser. .

Ultimately, the algorithm creating the advice must be kept updated to cater for any changes to rules for tax, super, insurance. Out of date information could cause incorrect advice recommendations. Fortunately, today’s operators are guided by regulatory requirements – everyone makes sure they keep their systems updated. George Haramis is the CEO of Fiduciary Financial Services, AFSL 247344, trading as moneyGPS, a provider of robo advice. Readers can take advantage of a free Money Check-Up or Retirement Check-Up+ at www.fiduciary.retirewell.online/register?invitecode=MONEYMAG for the month of November.