Transitioning to digital advice is not the answer to the advice affordability and accessibility dilemma, according to Dr Paul Moran.
The founder of iFactFind and principal of Moran Partners Financial Planning presented his doctoral research findings at the FPA Professional Congress in Sydney.
His quantitative study explored the connection between investor beliefs and financial behaviour, and was completed by 280 respondents.
Despite other professionals at the event who expected to see a beneficial rise in digital advice due to the finite size of the financial advice industry, Moran urged otherwise.
“If clients don’t know what they don’t know, and digital advice platforms only ask questions designed to obtain a predetermined outcome, otherwise called an algorithm, it is questionable how much they can really help,” he said.
Moran added: “Problematically, people typically use digital experiences to obtain pleasurable outcomes, like buying clothes and concert tickets, but not for things like life insurance and topping up super, which doesn’t help solve the advice access issues.”
His research additionally reinforced the importance of professional advice due to a trend in investors who demonstrated problematic asset allocation behaviour.
This was largely underpinned by unreliable research on past performance which had misled investors.
“The most important factor in investment decision-making is people’s perception of past performance and most of the time that perception is poor or just plain wrong,” he said.
“When asked to choose the best past performer out of superannuation, Australian shares and residential real estate, more than 60% of people got it wrong yet they indicated that past performance was a significant factor in their asset allocation decisions.”
The way that questions were constructed significantly affected how investors selected their investment preferences.
When asked to choose their favoured asset class based on past performance, 38% of investors selected Australian shares, 33% selected real estate and 26% chose super.
Contrastingly, the results differed when asked the same question but based upon participants’ forecasts for future performance. Nearly 50% of respondents selected shares, 18% chose real estate and 33% selected super.
Moran said: “People can give very different responses to the same question, depending on how the question is framed.”
“The research reinforces the importance of having an experienced adviser to help guide clients to make smart decisions,” he concluded.
