The deliverance of financial advice is set to change in big ways whether advisers are prepared for it or not, says authorised financial adviser Liz Koh.
“Right now, we are on the threshold of major changes to the way financial advice is delivered,” Koh said in an opinion article from Fairfax media.
“Perhaps the biggest impact is likely to be felt on the provision of investment advice, with the development of what is being called "roboadvice", a term which describes the use of automation and digital techniques to build and manage investment portfolios.”
Koh points out that although roboadvice providers are small in numbers, their growth is exponential.
“In the US, roboadvice has been adopted by major firms such as Charles Schwab and Vanguard and new providers are appearing such as Wealthfront and Betterment.
“Closer to home, in Australia, Stockspot and InvestSmart are growing rapidly. There are roboadvice platforms under development in New Zealand. Roboadvice would seem to be a logical next step for the NZX Smartshares funds.”
Koh says clients will be drawn to the low cost of roboadvice.
“Generally, a small client is someone with less than $100,000 to invest, but some larger firms set their minimum investment amount at $500,000. The lower cost of roboadvice makes diversified investment affordable for people with relatively small amounts to invest.”
And it’s not just advisers that will be disrupted by roboadvice but that it will challenge the way regulators oversee the industry as well.
“The current regulatory regime is centred on human advisers who must comply with the Financial Advisers Act and the Code of Conduct for Authorised Financial Advisers,” says Koh.
“It will be interesting to see how the regulators respond to roboadvice and whether changes will be required to current legislation to protect investors.
“While roboadvice with its no-frills approach may fill a gap at the lower end of the investment market or with DIY investors, there will still be a place for personalised advice from a trusted adviser.
“Many investment advisers are now already using standardised or model portfolios within their practices and are adding value for clients in other ways besides portfolio selection.”