Robo financial advice is one of the fastest growing digital disruptors in the international finance sector, but concern over automated advice is growing, with a senior financial adviser at a leading accountancy and advice firm saying a “one-size-fits-all” approach will put consumers at risk.
Adrian Frinsdorf, Wealth advisory director at William Buck, says robo advice can be a useful tool for financial advisors and savvy consumers, however amateur consumers should “steer-clear” of automated services.
“We’re all aware of digital disruption, and in most cases it’s a good thing,” Frinsdorf said.
“But I think consumers should be cautious when digital products are claiming to offer impartial consultation in the financial sector – particularly when owned and implemented by product providers.
“When it comes to finances, the consumers who are looking for cheap outcomes are usually those who can’t afford for things to go wrong – so unless you’re a sophisticated investor, my advice would be to steer-clear of automated services.”
Frinsdorf told Australian Broker
that an amateur investor’s lack of understanding about risk will be a major risk factor when it comes to robo financial advice.
“The major risk is [consumers] really understanding that the information they give will determine the outcome. Sometimes – and I’ve looked at a number of the robo advice platforms – some of the questions can be misleading. They’re open to interpretation and I tend to find that individuals can be very optimistic about their situation,” he told Australian Broker
“In the end, a lot of them ask to [the consumer] determine their risk profile – would they prefer to make 20% or 5%, and most people are going to answer 20%. The danger though, is to try and achieve 20% they have got to take a large amount of risk. My view is that individual investors just do not understand risk.”
Last week, major mortgage and wealth franchise Yellow Brick Road (YBR) launched its robo advice tool Guru nationally, after a successful pilot which began in June.
But whilst Frinsdorf is warning amateur financial consumers to steer-clear of robo-advice, that is the market YBR’s Guru is targeting. According to YBR executive chairman Mark Bouris
, Guru will be targeted to those “80% of Australians [who] don’t have a financial plan because they see it as cost prohibitive and confusing”.
And whilst Frinsdorf told Australian Broker
that he does agree with Bouris about the prohibitive costs of financial advice, robo advice is not the solution.
is right, the cost of getting financial advice for people who can’t afford it is just too much and therefore they don’t take it on. But what I would say is robo advice will not be financial advice. It will end up being investment advice and those people that can’t afford it, what they need most is financial advice. The advice might not be about investing, it might be that the best thing to do with their $100,000 is to pay off their debt. It might be that the best thing to do is to put it into superannuation or pay off personal debt. All of these strategies are far more important than if they are going to put it into an Australian share fund, an ETF or direct shares.”