Consumers are missing out on the benefits of robo-advice, with the Australian Securities and Investment Commission (ASIC) revealing that there is very little take-up of the service.
This is despite the fact there is huge unmet demand for affordable financial planning services that can benefit from robo-advice’s low cost, simplicity and accessibility.
According to ASIC’s Report 627 Financial advice: What consumers really think, only one per cent of survey respondents have used robo-advice. In addition, a staggering 84 per cent of respondents have not heard of it at all.
Robo-advice is automated financial advice that takes place solely online without the use of a human advisor. Instead it utilises technology to offer a whole new range of low-cost ways for investors to get into the market.
The survey found that 19 per cent of respondents were open to robo-advice once it had been explained to them, and 37 per cent of those who had considered getting financial advice and had not gone through with it were open to using robo-advice.
ASIC Commissioner, Danielle Press says: “Although not all Australians need financial advice, it is imperative that people wanting advice when making critical financial decisions are able to access high quality advice and equally, feel confident that the advice is in their best interests.”
Robo-advice has low investment costs as the majority of robo-advisers use exchange traded funds. Investors are able to start with small investment amounts depending on the service and the robo-advisors take care of all investment maintenance.
Typically, the first step for an investor is to answer an online questionnaire about their finances in order to determine their risk appetite and goals.
The robo-advisor then uses algorithms to generate a personalised portfolio of exchange traded funds (ETFs) that are suited to the goals of the investor.
An ETF is a professionally managed portfolio of securities. Most track an index like the S&P/ASX 200 however some ETFs are actively managed which means that a portfolio manager selects the securities with the aim of beating the index.
Co-founder of robo-advisor Clover, Harry Chemay says: “ETFs offer great advantages: high transparency, low cost, great diversification. For consumer product Clover, we will continue to use ETFs as it is a good way to start learning about investing.”
The most common topics that Australians want advice on are investments, at 45 per cent, retirement income planning (37 per cent), growing superannuation (31 per cent), budgeting (22 per cent) and aged care planning (18 per cent).
On the other hand, the biggest barriers for Australians seeking advice were cost (35 per cent), the notion that a financial situation was not complex enough to need advice (29 per cent) and lack of trust in financial advisors (19 per cent).
Press says: “Financial advisers have an important role to play in helping consumers improve their financial position, and there is a real opportunity for the advice industry to rebuild that trust by reorienting itself and putting consumers at the heart of its services.”
The support for financial advisers was quite split as the results showed that 55 per cent of respondents agreed that financial advisers could help them make the right decisions for their future.
Interestingly, 49 per cent of online survey respondents thought that financial advisers are interested in their own financial gain rather than assisting their customers.
Press says: “While Australians believe financial advisers can offer significant expertise on financial matters, our research shows that many don’t seek advice because they are put off by factors such as high costs, significant distrust of the industry and a perception that financial advice is only for the wealthy.”
The survey was commissioned by ASIC and undertaken by Whereto Research. It consisted of an 18 minute survey completed by 2545 participants, four 90 minute group discussions with seven to eight participants in each group and 34 one-hour in-depth interviews.
Following this research, ASIC plans to conduct a larger project in 2020/21 that will examine the state of the financial advice industry, the demand for advice, the supply of advice, if there are gaps between the supply and demand and how to overcome that.