Robo-advice to unseat poor quality planners
Robo-advice can replace human advisers, who generally have a poor track record when it comes to investments, by removing financial incentives and risks from the process while being able to service small and large scale clients.
Stockspot chief executive, Chris Brycki, has stated that it is a ‘popular myth' that robo-advice is no substitute for human provided advice and the evidence is not evident that the latter is better than the former.
"Human financial advisers generally have a poor track record of letting their emotions, as well as financial incentives, get in the way of sensible investment decisions," Brycki said.
"Scores of advised clients went into the Global Financial Crisis overleveraged as well as overexposed to the wrong risky investments. The same has happened in previous cycles like the tech boom in 1999 when brokers and advisers were overzealous and pushed clients into riskier and riskier stocks as markets rose."
Brycki claimed that robo-advisers reduced exposure to profitable investments after periods of gain to reduce risk and this type of portfolio rebalancing was industry best practice and easier for robo-advisers to achieve "than a human adviser who is prone to herd mentality and emotions when markets are hot".
He rejected the claim that robo-advice was only for low-balance investors and claimed "the high costs attached to most professional investment products make traditional advice expensive for larger clients too".
This was, in turn, pushing high net worth clients to consider robo-advice with Brycki stating Stockspot managed balances from its' minimum investment of $2000 to balances in excess of $1 million
He also rejected the idea that adviser driven software that created recommendations for clients was robo-advice but did state that any form of robo-advice should come with a Statement of Advice (SOA) as this was a legal requirement whenever personal advice was provided.
AUTHOR
Jason Spits
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