The jury is still out on whether robo-advice groups can generate revenue and build businesses around the model, because acquiring customers is expensive and creating a revenue model is difficult, according to an academic.
Melbourne Business School principal fellow, Dr Sam Wylie, opined that acquiring customers who wished to have their wealth designed and implemented was difficult while convincing them to pay for that service was almost impossible.
He likened it to peer-to-peer lending, which while he acknowledged carried potential, he noted that nobody had implemented it at scale and generated revenue.
“There’s a hell of a lot of talk about peer-to-peer lending but when you dig into it, you’ll usually see that money is being lent in tens of millions of dollars and nobody’s actually making a profit yet. I put robo-advice in that category,” Wylie said.
While there was an argument that robo-advice could provide financial advice access to the generation Y cohort and 80 per cent of those who did not seek advice, it was not necessarily money or inconvenience that was preventing them from seeking advice.
Rather it was because they either did not feel they needed financial advice or they just were not engaged with their finances.
“Just because you put an online solution in front of them, doesn’t mean that that’s going to activate anything,” he said.
Wylie noted Macquarie’s robo advisory service, Owners Advisory, was a diagnostic approach, wherein they targeted high-net worth investors who were already invested and sought to advise them on whether they had the appropriate solutions and the best implementation.
“It might be really about building Macquarie’s brand and ultimately not making money out of the service but making money out of convincing people that they really should have all of their money with Macquarie: that they should let Macquarie manage their money,” he said.
While he acknowledged that robo advice would ultimately take over financial advice in the long-term, he said robo-advice was just an additional product that differentiated one advisory group from another in the near-term, with little prospect of generating substantial revenue at present.
