The more things change

It wasn’t that long ago that our industry was struggling with too many clients, not enough advisers and a perceived mismatch between fees and value.

These were essentially the drivers of "robo-advice" – which was perhaps the wrong name for it,  in hindsight, as there was little or no “advice” on anything other than the investment portfolio. Robo was low fees, no human involvement and digital; the perfect solution for our new world, or so it seemed at the time. 

Build it and they will come? Perhaps not!

Why is that? It seems to us that the same challenges exist today as they did almost 20 years ago and the underlying problems remain. The solution promised by "robo-advice" has yet to be realised and, as a country, we're still faced with: 

• A complex (and often confusing) set of taxation, superannuation, retirement and social services systems.
  
  
• An ongoing need for quality, professional advice – clearly driven by the wealth transfer phenomenon.
  
  
• The cost of advice as a considerable barrier; the "value" of advice remains illusory and difficult to understand for many people. Rising, unrelenting cost-of-living pressures don’t help!

On top of all that, there are insufficient numbers of advisers to serve the rising client demand. With many advisers now looking to exit over the next few years, it’s painfully clear that the estimated 1.1% net growth rate in adviser numbers (reaching 16,708 by 2029 – The Big Shift, Iress/Deloitte) won’t be sufficient to serve the needs of so many Australians.

Undoubtedly, tech has a major role to play in helping to resolve this problem. Perhaps a few observations/lessons from our 15-plus years of hands-on experience working in the States along their robo-advice journey can provide some pointers for us today?

The more things change, the more they stay the same

As crazy as it might seem, when assets under digital advice in the States surpassed US$1 trillion, the robo revolution hit a snag: profit was proving elusive. Inflow is one thing; profitable inflow is another.

This led to some robo providers increasing their fees. Somewhat ironically, they reduced one of their main points of difference (lower fees) by doing so. Other groups, JP Morgan Chase and Goldman Sachs, have chosen to withdraw from this particular channel, selling their client accounts to others.

For those who remain, most seem to have adapted their business models – tellingly, by adding a human option to their offer. It now sits proudly beside their self-directed and advisor-led platforms. Clients like access to people, it seems, even if they prefer to interact digitally.

Robo learnings along the way

We've learned a few things about robo-advice from these experiences:

• It’s expensive to build, maintain and promote
  
  
• Really big scale is needed
  
  
• A longer-term timeframe and perspective is definitely needed
  
  
• The underlying strategy is always, in our view, a "work in progress" and it should be objectively and pragmatically re-evaluated on an ongoing basis
  
  
  • In the case of robo, while it was initially seen as the preferred method for younger clients and/or clients who initially didn’t have the money or appetite for fees, robo has seemingly morphed to accommodate older clients attracted to digital solutions
    
    
• Business models will need to evolve and adapt as circumstances dictate
  
  
• At the end of the day, ROI will govern – eventually determining if you stay the course, change your course or exit.

Back to Australia and our own advice gap challenges. Yes, tech has a major role to play, but it can’t do it all for everyone. It won’t replace the need for cultivated relationships.

How this message is communicated, received and acted upon remains a challenge for every player in the advice business.

For your consideration.