An adviser friendly robo
Robo-advisers have arrived on the South African financial services scene over the last year with great fanfare and equal consternation for advisers, suggesting the beginning of the end for conventional face to face financial advice.
Most Robo’s will find it very difficult to survive because very few are aimed at increasing the value of a human financial adviser who already has a trusting client base and many others will simply not attain the required economies of scale to survive on their own.
Robos with brand clout will stand a better chance than those without. Those with crazy names that have no recognizable face may struggle to get investors to convert to a sale. It is just human nature - we take comfort in the things we already know and trust.
Another factor is that few are truly independent. Most offer a particular active fund managers “house” view. According to Morningstar, approximately 70% of fund managers who invest in equities underperformed the market, making it likely that investors end up in a fund or portfolio that does not suit or address their investment goals.
What does an independent Robo look like?
• It is one that will look across all asset classes, cash, bonds, property, equity, and offshore for the most efficient mix of investment products and then combining those in such a way to form a portfolio that will best suit an investor’s investment goal;
• It is one that will not favour one asset manager or fund over another, it will only pick the best of the best for you;
• It is one that will automatically rebalance your portfolio so that you never have to worry about the mix of assets you have chosen;
• It is one that will allow you to switch between different risk profiles as your life style changes; and
• It is one where if you need to speak to a human, you can.
These are characteristics that Itransact has incorporated into its soon to be launched Robo which will target two key markets;
Primary market
Itransact has carefully considered its Robo value proposition with regard to adviser’s smaller clients. If correctly deployed, Itransact’s Robo could significantly reduce the number of face-to-face meetings between IFAs and investors in order to sign up a new client, thereby reducing the costs of acquiring new clients and still allowing the adviser to charge advice fees where due.
Secondary market
Itransact’s Robo will provide investment access to clients who cannot afford to explicitly pay for financial services thereby offering this previously disadvantaged investor market segment with low cost, institutional grade, personal investment portfolios consisting of some of South Africa’s most well-known financial service brands.
What does the advent of Robo’s mean for us?
Clients will increasingly come to expect engaging with many types of financial service technology solutions from their advisers as they become comfortable with technology and are prepared to follow the advice journey themselves with their adviser refining and guiding their decisions.
Overall, Robo’s will help clients gain a better understanding of investment principles like risk and return, and how these principles affected their investment outcomes.
Technology disruption in financial services is unlikely to completely replace conventional financial advice since our lives are just too human for a machine to compute the emotion behind our insurance and investment needs. Some clients will undoubtedly enjoy dealing with a technology-only solution, but international research over the last decade suggests that by far the majority of clients still prefer to deal with a human adviser on important matters regarding their financial future.
Another factor that will keep human financial advisers relevant is the fact that most of us find it very difficult to make long-term financial decisions in an uncertain environment without consulting another human being.
A last word on Robos
Advisers should think carefully about which Robos they choose for their business, it must make commercial sense for them and their clients.
