Roboadvice is many things to many people in many markets, in turn:
- once the saviour of Silicon Valley’s savings
- now the darling of the emergent Australian fintech economy
- the continued whipping boy of alpha seekers, and
- an already obsolete technology for skeptical venture capitalists.
For the true believers, “roboadvice” is seen as a dirty word that diminishes and ridicules the weighty aspirations of those immersed in the profession. Many prefer to use more cultured phrases like “automated advice” because their more positive connotations don’t evoke images of thousands of human advisers trudging to the Centrelink queues having been replaced by HAL or WALL-E.
Underlying this terminology war is an insecurity which stems from the personality crisis that pervades most roboadvice platforms. Are they true disrupters or the soon-to-be disrupted?
This is the conundrum I will explore in this article whilst surveying the current roboadvice offerings in the Australian market. My contention is that:
the nascent roboadvice profession lies sandwiched between a well-established but much maligned advice community and a barely comprehensible future of true artificial intelligence
Australia’s roboadvice pioneers
“If I have seen further it is by standing on the shoulders of giants”
When Sir Isaac uttered those famous words, he could very well have been talking about the evolution of the roboadvice industry in Australia. In many ways, it has followed closely in the footsteps of the pioneering Silicon Valley robo houses focusing first on basic multi-sector portfolio solutions and then evolving into more holistic automated advice solutions, as illustrated below:
In the USA, the automated advice solutions of the second generation that have seen the most success have been those with access to existing scale or a captive audience (e.g. Vanguard and Charles Schwab).
Many of the Australian second generation roboadvisers are banking on bringing fresh perspectives to the automated advice game. Some positioning themselves as product-agnostic portfolio construction tools that put the user in control (OwnersAdvisory) and some giving away their talents for free in the hope of entangling the client even further into their product ecosystem (I’m looking at you, Big 4 Banks).
The levers and dials that Australian roboadvisers are playing with form part of a common spectrum. Each offering being a different spectral play on one of the following characteristics:
Despite the active attempts to truly innovate, the cynical side of me suspects the Australian roboadvice platforms that will triumph will share similar characteristics with their USA counterparts (scale and a captive audience).
However, there is another way…
Making roboadvice sticky
Roboadvisers should be catnip to a prospective client like me. I’m young, growing my wealth, financial savvy but don’t currently have a financial adviser. So what could a roboadviser do to make me use them?
Roboadvisers need to know their client-base and solve real advice problems for them.
Risk-appetite based investment portfolios or generating returns through a top-down asset allocation approach are tried and tested formulas. But they are not engaging or relevant concepts for the average joe investor.
To engage effectively, roboadvisers can take a powerful lesson from the development of mobile applications for financial products and accounts. For example, what do you suppose is the most downloaded superannuation app?
The answer is:
Why do you think this has been downloaded by so many Cbus Super’s members?
(a) is useful and relevant to its user base (most construction employees work outside, love their footy and can’t wait until their next holiday)
(b) emphasises features that are much more human and customer-focused than the current balance of their superannuation.
In a previous post, I argued that goals-based advice conversations are the beginning of an industry-wide paradigm shift that will make financial advice relevant again to the masses. Perhaps empathy is the missing ingredient for human and robotic advisers alike.
Unifying the advice community
If humans struggle so much with empathy, what hope for a computer? Roboadvisers don’t need to feel or mimic human emotions to become more useful and relevant to their prospective client base. However, roboadvisers do need to reassess their position in the advice spectrum. Are they cold and calculating or warm and fuzzy? Are they the saviours of the advice profession or the destroyers?
I tend towards the view that roboadvisers can become a powerful part of the advice toolkit, helping to serve clients with simpler advice needs and providing full service advisers a reliable way to begin advice conversations with clients who need help achieving their financial goals or meeting their financial needs.
Roboadvisers that understand their place within the advice spectrum and can humanise their value proposition with gamification techniques are well placed for long-term success. Gamification can turn a chore into a challenge and one of the more appealing conceptualisations of this, from an advice perspective, is Melius.
Melius is a lead generation tool for financial advisers. Prospective clients answer a series of personal finances and wealth questions which are translated into a peer-benchmarked financial wellness (Melius) score. Clients are behaviourally incentivised to improve their Melius score by contacting their financial adviser to, for example, increase their insurance coverage, re-weight their investment portfolio or refinance their home loan.
The Melius concept, whilst appealing, isn’t the panacea for roboadvice. Roboadvisers need to become more human. Or rather, they need to seem more human.
Disrupting roboadvice (the 3rd generation)
Imagine, Siri for financial wellness. Lets call her, Robotica. For the same price as your monthly Spotify subscription you can hold your financial future in the palm of your hand:
Good morning, Ashton. How can I help you today?
Robotica, how is my investment portfolio performing?
You’re doing OK, Ashton. Your portfolio is currently outperforming the market by 5% which is better than 98% of your peers. However, I recommend that you reduce your allocation to Australian mining stocks by $22,000 as iron ore prices are continuing to soften.
Thanks Robotica, please go ahead and implement that.
All done Ashton, you have incurred $55 of brokerage costs. Have a good day at work. Let me know if you need anything else today.
The future of roboadvice will be built on natural language processing, machine learning and artificial intelligence. With sufficient processing power to mimic human conversation, roboadvisers will interact with clients fluidly and naturally. Once the uncanny valley is bridged, the floodgates will open and the industry will never be the same again.
This may seem like science fiction now but human advisers would be well advised to make friends with their robotic counterparts. Whilst the current and near future generation of roboadvisers may not be that impressive, a new world of financial advice awaits only a quantum computing heartbeat away.
If you enjoyed this post, please like or comment below. You can read previous articles in this series on ideas transforming Australia’s wealth in 2016 below:
Idea #1 – Goals-based investing