I, ROBO-AD­VISER

In 1997, IBM’s chess com­puter beat world cham­pion Garry Kas­parov. Since then, the learn­ing power of ma­chines has been grow­ing at a ter­ri­fy­ingly fast pace in al­most all fields — in­clud­ing fi­nance, the next in­dus­try set to be hit by the tech wave.

Virgin Australia Voyeur - - EXEC STYLE - Words DAVID HALLIDAY Il­lus­tra­tion THE PRO­JECT TWINS/ THE IL­LUS­TRA­TION ROOM

Once upon a time, fi­nan­cial advisers were grey­ing men in their six­ties who wore de­signer pin­stripe suits and se­ri­ous bling. Their fees were even more ex­trav­a­gant than their out­fits, how­ever in days of yore, that wouldn’t have mat­tered to most peo­ple. But to­day, with ema­ci­ated in­ter­est rates and an in­ac­ces­si­ble prop­erty mar­ket added to the mix, many are left in a tight spot if want­ing to grow a nest egg.

For the grow­ing de­mo­graphic stuck in this fi­nan­cial twi­light zone, a new so­lu­tion is on the hori­zon: robo-ad­vice. In less sexy terms, it’s an on­line plat­form which au­to­mates port­fo­lio man­age­ment. You pro­vide a few de­tails and it spits out a tai­lored in­vest­ment strat­egy. It’s a low-cost method that aims to max­imise peo­ple’s re­turns for a cal­cu­lated level of risk. And there are plenty of in­vestors — in par­tic­u­lar mil­len­ni­als — who can’t get enough of it.

Pat Gar­rett, CEO of au­to­mated in­vest­ment firm Six Park As­set Man­age­ment (and a for­mer vice-pres­i­dent at JP Mor­gan), be­lieves this change in the fi­nan­cial land­scape is per­ma­nent. “Robo-ad­vice emerged over­seas five years ago,” says Gar­rett. “Through a web­site, you can au­to­mate 95 per cent of the process that you’d nor­mally go through to get in­vest­ment ad­vice and port­fo­lio man­age­ment.” The process uses low-cost in­dex funds, which are a boom­ing in­vest­ment ve­hi­cle, po­si­tion­ing it as ac­ces­si­ble and af­ford­able for those with no fi­nan­cial lit­er­acy.

You pro­vide a few de­tails and it spits out a tai­lored in­vest­ment strat­egy. It’s a low-cost method that aims to max­imise re­turns.

With a 25-year back­ground in the fi­nan­cial ser­vices in­dus­try in the US, Gar­rett co-founded Six Park with Aus­tralian fi­nan­cial lu­mi­nary Brian Wat­son AO in 2014. To­gether they built an ad­vi­sory board that’s span­gled with stars of Aus­tralian fi­nance (Lind­say Tan­ner, Paul Costello) and they’re ex­pect­ing big re­turns in the field of robo-in­vest­ing in 2018.

A num­ber of hu­man fi­nan­cial advisers and fund man­agers have been ac­cused of one-star ser­vice but charg­ing five-star fees. “Peo­ple have been over­pay­ing for un­der­per­for­mance,” Gar­rett says. “S&P’s (fi­nan­cial ser­vices firm Stan­dard & Poor’s) re­search in­di­cates 60-80 per cent of ac­tive fund man­agers are un­der­per­form­ing,” leav­ing the gate wide open for al­go­rithmwield­ing fin­tech start-ups. And it’s not just mil­len­ni­als who are caught in the trac­tor beam. “Even high-net-worth in­di­vid­u­als are ask­ing as­set man­agers to use robo to pro­vide them a bet­ter prod­uct at a lower cost,” he says.

Mor­gan Stan­ley re­cently joined the fray, launch­ing a robo ser­vice to at­tract mil­len­ni­als. Now, all the ma­jors — JP Mor­gan, Gold­man Sachs and HSBC — have re­alised they need to of­fer dig­i­tal-as­set man­age­ment ser­vice that’s ac­ces­si­ble to young peo­ple. Aus­tralia’s big four banks are ex­pected to fol­low suit. But Gar­rett ad­mits go­ing au­to­mated isn’t suit­able for ev­ery­one. “What robo doesn’t do is give you so­phis­ti­cated es­tate plan­ning ad­vice, or spe­cific tax ad­vice,” he says. “For that, you still need a hu­man pro­fes­sional.” But if you don’t need highly spe­cialised ad­vice, robo has changed the pro­fes­sional ad­vice land­scape.

Robo-ad­vice, which is al­ready a mas­sive $250 bil­lion to $500 bil­lion global mar­ket, is tipped to grow north of $1 tril­lion by 2020. The big ques­tion is: will fund man­age­ment be the lat­est ca­reer to fall vic­tim to au­to­ma­tion? Gar­rett thinks not. “Over­seas we’re see­ing a trend of hy­brid mod­els, with robo-ad­vice part­ner­ing with wealth man­age­ment firms. We think robo will be­come one el­e­ment in a spec­trum of wealth man­age­ment,” he ex­plains.

Now all the ma­jors — JP Mor­gan, Gold­man Sachs, HSBC — have re­alised they need to have a low-cost, dig­i­tal-as­set man­age­ment ser­vice that’s ac­ces­si­ble to young peo­ple.

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