Use robo-advice as diagnostic tool
Successful robo advisers should take a diagnostic approach to investment advice rather than a ‘design and implement' approach, where they can seek to improve clients' investment choices rather than starting from scratch, Melbourne Business School principal fellow, Sam Wylie said.
Robo-advisers currently took the same approach as architects: they looked at clients' situation and their goals, age, income, current investments and risk aversion, recommended choices on how much to save and how much to invest in each asset class, and they then implemented the choices.
"I think this is the wrong approach for do-it-yourself investors who are the natural clientele of robo-advisers," Wylie said.
"Those investors have already made investment choices and implemented them. Robo-advisers should be working with the client to examine those choices and find improvements."
Good robo-advisers should ask investors why they have made current choices and propose improvements.
"Why do you have an SMSF? How is that helping you? Here is a list of ways in which self-managed super adds value for investors. Which of these apply to you? None of them? Ok, why don't you switch to a low cost industry fund?" Wylie said.
Diagnostic robo-advisers also faced the challenge of finding out how to charge ongoing rather than one-off, or episodic fees. While they charge a percentage of funds under advice (usually between 0.25 to 0.75 per cent), it is very difficult to charge ongoing fees without providing ongoing advice.
Wylie said they could either combine robo-advice with wider services like an SMSF administration provider, or the diagnostic service could be provided by a private wealth management firm or industry fund to establish contact with wealthy investors.
AUTHOR
Malavika Santhebennur
Recommended for you
AMP has agreed in principle to settle an advice and insurance class action that commenced in 2020 related to historic commission payment activity.
Financial advisers will have to pay around $10.4 million of the impending $47.3 million CSLR special levy but Treasury has expanded the remit to also include super fund trustees and other retail-facing sub-sectors.
While social media can have positive financial influence, the overwhelming risks signal a greater need for affordable advice as Australians continue to seek financial education on social media.
Fitzpatricks Advice Partners has released a guide on building a national advice firm with the argument that these firms are crucial to facilitating growth in the struggling profession.
