Solving the roboadvice riddle: it’s not the investments, stupid!

Solving the roboadvice riddle: it’s not the investments, stupid!

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more positive connotations don’t evoke images of thousands of human advisers trudging to the Centrelink queues having been replaced by HAL or WALL-E.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?

Because it:

(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:

 Hello, Robotica!

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

Idea #2 – Blockchain (Part 1, Part 2, Part 3)

Goals-based investing: a new advice conversation

Goals-based investing: a new advice conversation

“How much do you think you will need to retire?”

Tough question. Common question. Meaningful question? Probably not. Increasingly, advice professionals need to consider:

“Am I asking my client the right kind of questions?”

Rather than focusing on absolute performance against an impersonal benchmark, a goals-based investment approach is enabling financial advisers and wealth managers to build a truly personal investment portfolio for their clients.

The typical approach, used by human or robot advisers alike, is to construct a recommended investment mix focused on two metrics:

  • return: an absolute level of income and growth a client wishes to achieve from their investments
  • risk: the volatility or downside a client is willing to tolerate in achieving their desired returns.

This approach measures its success primarily from quantitative factors which can mean very little to clients when compared with their personal or family-oriented goals. In contrast, goals-based investment philosophies can begin a powerful client conversation and allow advisers to make investment recommendations that are meaningfully linked to a personal goal or sense of achievement for the client.

In 2016, momentum will build for advisers to place client goals at the centre of the advice conversation. To understand client goals and build an investment strategy and portfolio mix that is explicitly designed to achieve those goals.

Advisers will need to ask their clients less about savings, rates of return and risk tolerance and more questions like:

“What do you want to do and how do you want to live when you retire?”

Consider, benchmark returns and volatility measures mean very little to clients when compared to their goals, hopes and dreams. Advisers understand the importance of talking the same language as their clients and it can be a small but significant step to also invest clients in a way that they intuitively understand. This is where goals-based investing can be particularly powerful.

Continuing with the retirement theme, the traditional asset allocation approach can underestimate or ignore some key risks of retirement, including:

  • sequencing risk: where lower than average expected returns occur early in the retirement term, and have a detrimental effect on the size and duration of a client’s retirement savings
  • longevity risk: where a client’s lifespan and, therefore, retirement term is longer than anticipated leading to a detrimental effect on the duration of the client’s retirement savings.

Rather than trying to achieve retirement goals with a single investment approach and overall target return, goals-based investing takes each goal, considers them as an individual objective, and builds a tailored investment approach.

Advisers that want to begin a goals-based conversation with their clients should be aware of common client behaviours with goal-setting:

  • needs are more important than wants: clients are generally willing to take on more risk when the goal is to invest to buy a speedboat, rather than investing to protect their retirement savings
  • immediate goals are more obvious than later goals: clients are generally more concerned about their current situation and often don’t focus enough on their longer term goals.

To illustrate this:

Advisers need to consider how much client goals can vary in terms of their priority, timing and level of risk the client is willing to tolerate to achieve each goal. Returning to the retirement theme, a goals-based discussion may highlight that in order to provide clients with an effective retirement strategy, an investment approach should:

  • quantify the income stream level required to support the client’s lifestyle
  • invest to provide this income stream level for the full retirement term
  • include realistic assumptions about the length of the retirement term.


Three ways advisers can reframe the advice conversation

There are some simple ways that advisers can orient their advice process towards their clients’ goals:

  1. Start asking different questions: this can be as simple as asking a client ‘what are your most important goals and why?’ or as complex as asking ‘how would you describe your ideal retirement lifestyle?’ Clients have come to expect that advisers understand their circumstances and will provide a personalised service. Don’t be afraid to probe deeper during the client discovery phase.
  2. Identify more soft risks: start building into the asset allocation process an understanding of the key roadblocks that will prevent clients achieving their goals (beyond simple market under-performance). Qualitative risks, like opportunity cost, are often poorly understood by clients. If advisers help their clients understand these risks, they may be able to put forward an investment portfolio that better manages their expectations.
  3. Change the way performance is reported: rather than reporting performance against a market benchmark, advisers can start reporting performance against a goal their client is trying to achieve. It can be a powerful image for a client to see how close they are to achieving their goals. More importantly, it may allow clients to better understand how their investments are helping them to achieve their long-term goals (such as the income they want in retirement).


Goals-based investing is just an extension of the knowledge advisers have of their clients and the personal nature of the advice process. Advisers should reflect…are you asking your clients the right questions?