Roboadvice may be too expensive to pay off

Commercial constraints may put the brakes on on roboadvice reaching its full potential for now, it has been suggested.

Wednesday, September 30th 2015, 6:00AM

by Susan Edmunds

National Australia Bank is in the process of rolling out NAB Prosper to 40,000 of its customers. There are plans to offer it to all three million of its Australian online banking customers eventually.

It is a roboadvice tool that offers general advice on insurance and retirement savings.

But Binu Paul, who runs SavvyKiwi, which provides an online tool to match savers Kiwi Saver members with the right fund, ongoing information and education on a subscription basis, said the application of roboadvice was likely to be limited for now.

He said most “roboadvice” offerings so far were better described as the application of clever technology to sell a provider’s products.

They were not true roboadvice in that they would compare products from different providers, he said.

That was likely driven by commercial constraints because in an environment where people were hesitant to pay for advice any way, it might not make sense to invest heavily in a platform to provide independent roboadvice.

“In New Zealand we shy away from paying for stuff like that. And with how small the market is as well… having come through a two-year tech build for something similar I know a substantial amount of work goes into these things, especially if it is going to be agnostic about what is on the platform.”

All of the major banks denied they were planning to launch any roboadvice offers, although ASB said it was something that was of interest.

Paul said five or six major providers had been interested in testing the waters.

He said the NAB model was not one that would disrupt financial advice.

Paul said it was tough going setting up SavvyKiwi but he was taking a five- to eight-year view. “So far the only way to get scale is to go through the employer market. I’ve got four on board and am talking to one of the large ones currently.”

Members pay fees from $89 a year. Paul said if the platform was to start charging providers, that would defeat the purpose.

“I believe regulation will come and that will disrupt a lot of the models that exist today, things will go down the route of being independent."

He has 2000 members on board and nearly 32% of the premium users had switched fund through the app. “That validates that it works well. But we need bigger penetration in the market, it is a brand new product and a brand new category of product, not something that has been seen before. It all takes time to find its legs in the market.”

Tags: KiwiSaver roboadvice