Robo-advice or robo-product?

Many of us are already looking ahead to 2017, and even considering resolutions for the new year. One of the most common resolutions is to get fit and there are more and more ways to help this happen – from the new Fitbit, an app on the phone or a personal trainer.

It will be interesting to measure which method shows the best results. Likely it's the personal trainer – and the reason why points to the fundamental value of human advice in a world of increasing digital disruption.

It’s a product – not advice

Robo-advice is adept at finding a well-balanced exchange traded fund or a low-cost index fund and can even consider a client’s appetite for risk. But is this advice or simply a financial product?

Many financial advisers can construct similar portfolios, however also provide the ‘human touch’. That is, the experience, empathy and emotional intelligence to know if this will truly help a client achieve their goals in retirement.

Financial advisers are able to ‘think outside the box’ to generate new ideas and uncover more suitable strategies across a wider range of complex issues such as tax minimisation, aged care, insurance and debt and whether a client’s money could be better invested elsewhere – such as in property or through super.

What’s more, a computer won’t know if you’ve supplied all the information. While a human may also not know a client’s full financial picture, they will at least try to uncover all the relevant information, such as a student loan or alternative assets which a client might not consider.

The robo-advice opportunity

If robo-advice is just about putting investors into products, could it even be considered a disruptive technology? On the contrary, if you consider robo-advice a product, it presents an opportunity for advisers to take advantage of this technology in financial advice to clients.

Computers will always be faster than humans at quarterly portfolio rebalancing, asset allocation or tax-loss harvesting, however for most advisers these are not the most valuable use of limited resources. Outsourcing the time consuming business of portfolio management frees up time for advisers to focus on higher value client engagement.

What can you do?

Even though most clients will always prefer human advice, there’s no doubt robo-advice is here to stay. That’s why it’s important to adapt your business to take advantage of new opportunities.

Here are some steps you can take:

  • Increase your clients’ education. Clients whose portfolios are constructed by computers are acting on faith – and will usually be none the wiser as to the reasons for those choices. This is a valuable differentiator for you, as a conversation which educates will be highly valued by your clients.
  • Increase your service offering. Diversify across a range of specialty areas – such as estate planning, philanthropy or tax advice to keep one step ahead of the robos. And remember, while a computer can send out a quarterly portfolio statement, it won’t call to see if there are questions!
  • Clarify your value proposition. One appeal of robo-advisers, especially for new clients, is the transparency of fees. That’s why it’s important to be able to convey the value you create – from advice and knowledge to ongoing mentoring for your clients.

Since robo-advice is about putting people into financial products, this technology represents just a small part of the holistic advice offered by financial advisers. It’s the full spectrum of advice – across different advice areas, education, empathy and service where true value lies. However, it’s more than that. Just as the value of a personal trainer is the motivation – and discipline – to succeed, the same is true for human financial advisers.

The information contained in this newsletter is provided on behalf of the IOOF group of companies and is intended for financial adviser use only. It is given in good faith and has been prepared based on information that is believed to be accurate and reliable at the time of publication. Any examples are for illustration purposes only and are based on the continuance of present laws and our interpretation of them at the time.