Robo advice and the future of investing

Photo of Toni Case By Toni Case

min read

Features, benefits and risks of using automated financial advice.

Investors of the future are more likely to thank a software algorithm than their financial planner for portfolio performance as robotic advice revolutionises the investing landscape.

Already, a swag of investment firms, from startups to large banks, are moving into offering robo advice to clients, targeting investors who would not normally visit a financial planner.

Robo advice may see the end of face-to-face consultations between some investors and their financial planners, which once culminated in the drawing up of a unique and personal financial plan.

Robo advice investors, instead, simply type personal details – such as age, gender, income, assets, risk profile and financial goals – into a software system, which generates a statement of advice and investment portfolio based on the personal criteria.

Of course, the software is limited. It will not account for, say, the requirement to have available funds to care for a sick relative, or an expense required at some future date. It does not know whether you intend to retire in three years, if you have large debts, or if you plan to take leave without pay in 2019.

But it can give you the skeleton of an investment map, and for many investors – the industry puts a figure of about 80 per cent of investors without a financial strategy of any sort – a skeleton plan is better than none at all.

Specialist firms such as Stockspot, Decimal and Ignition Wealth, as well as big banks, including Macquarie’s Owners Advisory (AO) and National Australia Bank's NAB Prosper, already offer robo advice in some guise.

Many robo advice models accept those with as little as $1,000 to invest, and automatic debit functions mean savings can be incrementally built up over time. Most software will take care of asset rebalancing in portfolios, triggering an email notification when a portfolio requires readjusting based on the owner’s risk profile. For instance, if your risk profile stipulates a 20 per cent allocation to equities and your portfolio sits at 60 per cent, the system will advise how to rebalance this.

Would you be comfortable with robo advice?

The question is, are people more likely to take advice from a robot or a real person? Some may be better suited to automation. The so-called “digital natives”, those born after 1980, are possibly more comfortable conducting their finances with a robot than sitting down with a financial planner.

Busy professionals who bank, shop and communicate online are probably not averse to having an algorithm choose their investments for them.

It will be high-net-wealth individuals or those with complex needs who will continue to stick with financial planners. At any rate, complicated tax and estate planning needs cannot be met (as yet) by any robo advice offering on the market.

A recent poll of more than 1,000 young investors aged 18 to 39 in the UK found that about 85 per cent were comfortable with getting robo advice. The poll, conducted by Global Investment Study, found that globally, on average, 59 per cent of young people are comfortable with robo advice; in theory, that is.

A major benefit of robo advice is that robots do not get spooked by bad news reports and therefore don’t panic-sell investments. Unless your risk profile or investment priorities have shifted, robo advice will keep you invested in your designated portfolio no matter what the headlines.

Nervous nellies, on the other hand, who like to speak to an adviser when markets get frantic, are less suited to an automated service.

ASIC’s draft regulatory guide on robo advice proposes that all providers have at least one responsible manager who fulfils adviser standards and training. But one adviser on the team certainly does not match the rapport that a financial planner has with a client.

Robo advice offerings on the market will differ according to investments offered, fees, and other auxiliary features such as whether you receive market and sector outlook reports to aid investing.

Macquarie’s Owners Advisory, for example, covers cash, fixed income, shares, commodities, exchange-traded funds and managed funds around the world. The platform has a choice of more than 30,000 local and international investments, and investors receive economic and market outlook summaries. Macquarie charges a $45 monthly subscription fee and a separate fee for the statement of advice.

Stockspot, on the other hand, offers ETFs, which are more set and forget than individual stocks. Come tax time, the Stockspot service generates an automated report that can be handballed to an accountant. Stockspot charges an annual fee of $77 and monthly fees of between 0.044 per cent and 0.077 per cent of the balance.

About the author

Toni Case is a director at, offering free investment and share information for Australian investors, via free weekly and twice-weekly bulletins.

From ASX

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