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Aussies steer clear of robo advisers, for now

Nicki Bourlioufas  |  29 Jun 2020Text size  Decrease  Increase  |  
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Australia is lagging the world in terms of the take-up of financial advice from robo advisors, with many investors preferring advice from a human rather than that from a technology platform, according to several new surveys.

A new report from Investment Trends on robo advice shows Australia lags significantly behind when it comes to the adoption of robo-advice, with just 7 per cent of online investors in the nation using robo-advice services.

That compares to the US at 23 per cent and the UK at 13 per cent. Investment Trends surveyed around 20,000 online investors in the US, UK, Germany, France, Singapore, Hong Kong and Australia.

Robo advice is delivered to investors via a technology platform which uses software to generate customised advice based on information about an individual’s financial circumstances. By 2020, Deloitte estimates that globally, between US$2.2 trillion ($3.19 trillion) and US$3.7 trillion ($5.37 trillion) in assets will be managed using robo advisers.

And 62 per cent of Australian investors (versus 50 per cent of investors globally) prefer to rely on advice from a person rather than a technology platform, according to a report from the CFA Institute, “Earning Investors’ Trust: How the Desire for Information, Innovation, and Influence is Shaping Client Relationships”.

Reflecting that, 81 per cent of investors in Australia would trust human advice over that of a robo-adviser compared to 73 per cent globally. Moreover, few Australian investors (16 per cent) said that they were willing to invest in a fund that used artificial intelligence (AI) for its selection process, compared to 36 per cent of retail investors globally.

Robo familiarity is minimal

Awareness too of robo advice is low: a separate survey from the Chartered Accountants Australia and New Zealand, The Future of Advice, has found that 82 per cent of people surveyed had not heard of robo advice.

Yet the survey also found, when asked about the future of advice, the No 1 change people want from advice is that it be cheaper, one of the things robo advisers offer compared to traditional advisers.

Morningstar head of product and client solutions Graham Dixon says the survey results of these surveys are no surprise given just how challenging the local market is for technology enabled investment advice.

“Building a standalone robo-advice platform without a ready-made pool of clients to tap into is challenging—the cost of marketing is too high relative to the returns you can generate,” says Dixon.

“I think the direct to consumer (D2C) model will only be successful if a bank offered an investment account alongside its savings accounts, that was accessible via internet banking apps. Otherwise, a suite of multi-asset exchange-traded fund (ETF) portfolios can be a helpful part of an advisers suite of investment solutions—and Morningstar happens to have a suite of ETF model portfolios that many advisers already follow.

“So, what’s the purpose of a robo adviser in this space? How can they offer anything unique or differentiated that advisers don’t already have access to?”

Dixon answers this by saying robo advisers are a useful alternative “for those that don’t see the value in or can’t afford financial advice”.

George Lucas, managing director and founder one of Australia’s better known advisers, Raiz, says a big reason robo advisers aren’t used locally much is that there has been no mass rollout of robo advice as has happened in the US, where large financial services firms like Vanguard offer robo-advice solutions. Moreover, robo advice has been around for longer in the US since 2008 “so they have had more time to build trust with consumers.”

Finally, Lucas says, Australian financial laws are not as favourable for online advice, “which are designed to protect consumers.” Despite that, robo advisers can offer many benefits compared to traditional financial advice from humans, says Lucas.

“Robo advice is a simple and easy to understand option. It provides 24/7 access to advise and is attractive due to cheaper fees, making it affordable for more consumers. Consumers need to be aware, however, that robo advice is not holistic advice and it does not provide a wide range of choices and financial products.”

Robo role in keeping costs down

But Lucas is confident the sector as a whole can growth. “It takes time to build trust with community. If we continue to offer quality robo advice platforms, the sector will grow and consumers will remain protected.”

According to the Future of Advice survey, robo advice has an important role in keeping costs down. Developments in AI and robo advisers will allow advisers to automate workflows making them more consistent and efficient.

“This suggests that technology (including robo advice) has a future in the industry in order to help practitioners provide personalised advice while helping control costs. However, consumers will still prefer that the practitioner is front and centre in delivering the advice,” says the report.

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is a Morningstar contributor.

This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria. 

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