Robo or real-life financial advice – which adviser is better for your money? We take the debate to two experts to weigh up the pros and cons of each.
Robo advice, or automated investing, uses algorithms to automate the manual tasks a human adviser or a broker would do. Processes such as regular portfolio top-ups and rebalancing, risk management and tax reporting can be done automatically by a robo-adviser without added costs and the hassle of travelling to a physical location for an appointment.
One of the main problems with traditional financial advice is the humans behind it and the structure of the industry they work in. Remuneration is a huge problem, as we have seen repeatedly from the recent bank scandals. Advisers or their employers get paid from the financial product they’re selling; as a result, the products many advisers recommend are not in the client’s best interests.
Conversely, automated services such as Stockspot remove the human emotion and bias that make bad decisions and eat into returns.
Additionally, people’s risk profiles change very slowly over time. To justify their job and fees, human advisers recommend regular changes to investment strategies. Regular tinkering leads to additional costs that eat away at gains, when the best approach is to simply buy and hold a well-balanced, low-cost portfolio.
Stockspot’s philosophy is transparency; we don’t take commissions and our personalised advice is unbiased. We don’t try to beat the market. We believe in a diversified and well-balanced portfolio that matches a client’s risk appetite and financial goals.
Areas such as estate planning and tax structuring require a human because the advice required is highly personalised and complex. However, investing is best left to an unbiased, low-cost, sensible automated solution. Robo advice makes life easier, cheaper and fairer, therefore it is a better place for your money.
Ben Marshan, head of policy, Financial Planning Association
Only 20% of Australians have engaged with a financial planner; only 10% do so on a regular basis. The prospect offered by algorithmic advice solutions to engage more Australians is exciting. Helping Australians engage with their finances is the goal of every financial planner. This enables people to manage and improve their financial position.
Australians today say they don’t seek advice because they don’t have enough to invest, it’s too costly or they lack trust in the provider. To be legitimate solutions, automated product selection tools must solve these issues. Many automated tools are more expensive than existing product offerings and particularly a problem for those who have only low balances to invest. Fees must be more transparent and fairer.
We know there are proposed changes to financial planner regulation with the aim of increasing consumer trust. Will the Australian Securities and Investments Commission’s proposed regulation of fintech (including a “sandbox” for start-ups) increase consumer trust? Will this regulation ensure consumers are protected by, and able to trust, these tools? Consumers need to be able to trust that they are getting what they have bought.
Financial planners are always looking for ways to better manage their clients’ investment portfolios. Outsourcing product selection to technology solutions would reduce their own business risk and make advice cheaper and more efficient to provide – but there needs to be trust that the tools will look after their clients.
Financial planners provide their clients with more than just product selection. In fact, this is generally the least important aspect of good-quality financial plans. They help clients sleep at night by providing education, certainty and a road map for meeting their life goals.