Both AMP and the Australian Securities and Investments Commission (ASIC) are wrong to suggest that robo-advice will be sufficient to meet the needs of anyone earning $80,000 because reality suggests otherwise, according to economist and managing director of The Investment Collective, David French.
Commenting on the recent announcement by AMP that people earning an average $80,000 a year did not need an ongoing relationship with a financial adviser, French said it demonstrated a “cavernous disconnect between facts and reality”.
He said that, while there seemed to be a view that the costs of financial planning could be reduced to such an extent that it became affordable consistent with some “Aldi-style benchmark”, the facts suggested otherwise.
“Considering it takes at least a week to interview clients, collect and verify data and write and present a draft SOA, the cost of provision is at least $4,000”, Mr French said. “Add the cost of structuring and implementation and you are well on the way to 5 figures”.
He said he did not believe that robo-advice was the panacea being put forward by ASIC and others.
“Financial advice comprises an interaction between Investment, Superannuation, Tax, Social Security, and often other considerations. Those four factors alone suggest 24 different permutations and combinations. Add two more factors and you get 720 possible outcomes,” French said.
“As every financial adviser who has actually been providing a service knows, from concessional limits to non-concessional, from small business to trusts, and from student allowance to age pension, each of these overarching categories comes with a range and complexity that brings possible combinations to inconceivable numbers,” he said.
French said that even if he was wrong about the capabilities of robo-advice, no one should expect that the regulators would make clients responsible for the data they entered and the outcomes they generated.
“They will not – they will expect the licensee to have performed relevant checks as per the Best Interest Duty,” he said.