Robo-advice is evolving at such a rapid rate that it’s not been well defined as of yet. Without a standard definition, many people have made assumptions about what it is or isn’t without understanding the concept and purpose.
The research that informed the development and communication around our new Guru model was the 2015 Robo-Advice Benchmarking Report from Ernst & Young. They concluded that robo-advice can take one of three forms: guided and facilitated (either face-to-face or remotely), self-service and automated investment.
Much of the research we have seen links robo-advice to an asset allocation tool which links to a “pre-cast” portfolio solution i.e. by its nature it is very narrow and limited advice. A cynical view is that it is simply there to sell a product.
Robo-advice is attracting some detractors in the financial planning world, as some see it as just another product selling tool or a threat to a financial planner’s livelihood. However, robo-advice is much more than this. We are not suggesting replacing human interaction solely with robo-advice but we are talking about changing the way we engage potential customers to take away any apprehension they may have, reduce the complexity and make the advice more affordable overall.
At Yellow Brick Road, we support removing much of the technical and operational tasks in financial advising to make it more affordable for more people to access financial guidance. However, we also believe that the majority of people will always want to deal with another ‘person’ where the emotive issues of money and financial futures are on the table.
It is critical to have an equilibrium here, between the professional and the programme, making planning more accessible and scalable.
In Australia and overseas, there are generally two types of customers on opposite ends of the spectrum who currently obtain a financial plan. One is about 15 per cent of the population that wants to be told exactly what to do and have it executed by an expert. The other is the 5 to 10 per cent of people who want do it all themselves. The traditional financial planning industry caters for people on these two ends of the spectrum.
But what about the 80 per cent of the population in the middle? The ones that don’t need or value a high-end financial adviser and have it all done for them? What if they simply want a well-trained person to coach them through the basics to get on the right path?
We believe there are three stages that a person who is seeking financial guidance requires. They are the Discovery phase (engaging, de-mystifying and empowering), the Recommendation phase and the Execution phase.
Generally the robo-advice tools on the market are aimed at the Recommendation and Execution phases (in fact predominantly execution from what we can see). That’s not Guru’s primary purpose. In our experience and particularly in our target market of 30 to 40 year olds, we find that the Discovery phase is what the majority of the population desires. Many see that financial planning or financial advice is for wealthy people or retirees and the discovery phase is about illustrating that they too can benefit from advice.
This is the audience and phase at which Yellow Brick Road’s new guided robo-technology Guru is for.
With Guru we’ve been able to bring together tens of thousands of calculations and considerations to succinctly deliver understandable visual outcomes over time for people based on their current and projected financial situation across cashflow, the management of their debts, investments and superannuation and life insurance.
Once the person understands what their financial future could potentially look like, they are shown five powerful levers that they can adjust to change that outcome. These levers are spend less now, spend less later, make your money work harder for you (growth investments), make your money work smarter (tax-efficient investments) and work longer. Importantly they have control over these five levers and no financial product is discussed in this discovery phase. Note it is not a Statement of Advice or product recommendation but naturally this will follow if the customer can see the benefit and is motivated to act!
The ability to see the impact of various actions they can both control and understand that could improve their financial outcomes is both empowering and motivational.
While Guru is sophisticated, no robo-technology that we are aware of currently is focused fully on challenging the customer to articulate their broad financial and lifestyle hopes and dreams. Algorithms alone are important and insightful, but the real power is in weighing the context against the unique vision a customer has for their life and money. The focus of the adviser shifts to the person and not the engineering. One person’s view of a ‘comfortable’ life or retirement may dramatically differ to another’s.
We could easily have opened up the Guru technology to a direct customer interface online. But it would not have served the purpose we set out to achieve. We want it to relate to the customer’s individual hopes and dreams by having the money coach (our representative) present to guide this communication with the client.
We want all Australians to afford to have access to information that will help them make good financial decisions for the long term and we believe Guru is a big step in helping more people achieve this.
Matt Lawler is the chief executive of Yellow Brick Road