Treasurer Scott Morrison has sung the praises of robo financial advice, telling the G20 meeting in Germany “in Australia businesses are beginning to integrate robo advice into the retirement savings system to help people engage and prepare more fully for retirement”.
For many people, ‘robo advice’ is probably something they’ve never heard of, let alone factored in as an aid to their financial futures.
But unbeknownst to many of their members, a number of super funds are already utilising robo technology to help deliver a what they hope will be better investment outcomes.
Robo advice uses algorithms rather than human contact to make judgements about people’s financial situations, offer advice and even execute their choices.
Deloitte customer strategy director David Johnson told The New Daily it has the potential “to engage customers to give them control of their financial investments and to help make managing financial affairs simple”.
There are a number of iterations of robo advice. Some are additions to existing relationships between investors and financial institutions, while others take a more active role as an intermediary directing or advising clients to particular investments.
Parts of the super fund movement have already moved into the robo space, doing deals with fintech companies like Decimal, Clover and MidWinter. These deals take advantage of technology to give members advice.
Typically a fund member would feed in details of their financial and life situations online. This could include super balance, age, income, spending, debt levels and perhaps savings aspirations.
Using its algorithms, the program would then make recommendations about what sort of investment strategy would be appropriate for that person. It could recommend aggressive or conservative strategies, depending on the risk profile of the member.
“We enable funds to engage with members online. People might choose to go through the whole process and use our technology to execute their choices or they might at some point choose to drop out and talk to an advisor,” Nic Pollock, CEO of fintech group Decimal, told The New Daily.
“The aim is not to work to the exclusion of advisors. If people choose to drop out of the process and talk to advisors all the information they’ve provided is captured for the advisor to use.”
Another type of robo investing uses the platform Acorn. This technology enables people to round up the price of card purchase to points like the nearest dollar, $5 or $10. “The extra money can be directed into an ETF [exchange traded fund] or a super fund,” Deloitte’s Mr Johnson said.
Stockspot, an integrated robo investment company, takes a snapshot of an investors situation after they feed in a comprehensive picture of their financial situation. “We give personalised advice after [the algorithm] assesses a person’s situation,” Stockspot CEO Chris Brycki told The New Daily.
“We check their level of loans and might tell them not to invest at all.” If the algorithm shows the person is in a position to invest ” we might advise them to hold 50 per cent in savings and spread 50 per cent in a range of ETFs including Australian shares, overseas shares, bonds and other investments.”
The advice is tailored to a person’s risk profile considering a range of financial and other information. Stockspot to date serves the self-managed super fund market but Mr Brycki said it has been in discussion with industry funds about moving into that space.
Don’t forget the pension
Phil Gallagher, policy advisor at Industry Super Australia, said robo advice needs to take into account people’s social security situation. “I’d be very alarmed if an algorithm didn’t include social security treatment.”
Many people would be better off keeping their super in an allocated pension after retirement, rather than moving into an annuity product which might be caught up by the pension assets and income tests.
While annuities might deliver a higher income, they could reduce pension entitlements making a person worse off overall. “Private advisors often don’t consider social security issues as they are looking to win high net worth clients for whom social security isn’t an issue,” Mr Gallagher said.