Robo-advice is the latest buzz to hit our industry. It holds the promise of low-cost financial advice that ticks all the regulatory boxes, and is promoted as high-tech and sophisticated because it’s based on algorithms. It has the potential to tap the large pool of potential clients who don’t have advisers, often because they have little to invest.
While many advisers are concerned that robo-advice will erode their client base, when looking at the experience in the US, the reality has been the exact opposite. There, people who had not sought advice in the past have self-introduced themselves to the benefits that advice delivers.
Such newcomers generally are those with relatively little to invest, and who do not fall within the normal client profile of most advisers. US surveys also bring to light a number of other interesting findings.
Firstly, as an investor’s portfolio begins to grow, there is a realisation that robo-offerings have limitations. This, according to a CoreData survey, is at around the $US125,000 mark, and is when people start to look for professional advice.
Secondly, many practices that have directed small clients towards robo-advice and have maintained contact with them are finding that they come back for tailored advice as their wealth grows.
Curiously, some advisers have embraced the robo-advice concept to the extent that they are receiving referral fees from the robo-advice providers. Under such agreements, those clients who have been referred will not be approached should they return to the referrer.
So, algorithms provide a simple a tool that attracts new clients into the advice market. But, as a client’s portfolio grows, an understanding arises that impersonal advice cannot deliver the attribute that all surveys say is the most valued by clients: a relationship. Who ever heard of a robot that had a personality or could crack a joke?
Times of great change often prove to also be times of great opportunity. It seems that, rather than fearing the inroads being made by robo-advice, advisers should realise now is the time to plan the best ways to exploit the opportunity that today’s environment affords.
