Roboadvice could complement adviser businesses

Financial advisers could be able to make more money out of clients with smaller investment portfolios if they can find a way to introduce some roboadvice into their practices, it has been suggested.

Thursday, June 23rd 2016, 5:59AM

by Susan Edmunds

Tom O'Shea

Cerulli Associates, a global analytics firm, has released a report that says digital advice could be a solution for consumers who have investment portfolios that are too small to attract financial advisers.

Associate director Tom O'Shea said the mass market and lower end of the middle market were under-served by advisers. "A vast majority of consumers do not possess the assets necessary to merit attention from financial advisers."

Digital advice could enhance advisers' existing offerings, he said. "Combining human and digital advice can strengthen the fiduciary foundation of the client recommendations, This combination also allows an adviser to scale their practice in such a way that he or she can profitably manage the smaller accounts of mass-market consumers."

Janine Scott, director of financial planning at Massey University, said asset-poor clients had been underserved around the world, so it was a promising area.

Adviser Simon Hassan said he hoped the predictions would prove correct. "I guess one of the challenges for this is our small market size and the resulting high per capital development costs of the required technology."

Jeff Stangl, also of Massey University, said it seemed that small investors would benefit form a combination of personal and digital advice.

"There could be a potential risk in small investors' exclusive reliance on digital advice absent a human interface for validation and/or alternatives. A similar analogy exists between the accounting sector and digital platforms such as those provided by Intuit and Xero."

He said it should be assumed that roboadvice would be disruptive and a solution would need to be found that represented a "win-win" for all segments of the market.

Adviser Murray Weatherston said it had become harder over the past 10 years for people with less money to access advice. "The cost of giving advice has increased and there is a trend away from upfront and trail commissions so there is a need for clients to pay an explicit charge to get advice."

But he said there was a risk that roboadvice would end up being largely "robosales".

O'Shea said: "It is not that advisers are unwilling to help smaller investors, rather they cannot figure out how to make money when working with them, leaving investors to go it alone or rely on guidance provided by direct-to-consumer firms."

Scott said the biggest hurdle in New Zealand was the regulatory environment. "New Zealand's population demographics are very different to the US."

Tags: roboadvice