Robots Resuscitate Financial Planning in Australia

The reality is that 80% of Australian’s have never seen a financial planner and have no interest in buying the products they sell. But technology is filling this tremendous market gap and helping the industry engage with more clients.

Robo advice has been around for a few years now, and its original promise was to deliver investment advice without leaving your computer. 

You would put in your profile and tick a box saying your strategy was “aggressive” or “defensive” and then wait for the answer.

The result would be instructions on how to allocate your assets between shares, fixed income products and some newer synthetic Exchange Traded Funds (ETFs) which give an investor exposure to everything from other market indices to exotic commodities.

In this early incarnation, in Australia at least, there was very little interaction. A client would click and wait, and if they wanted the advice, they’d reach for their credit card.

It led to predictions of the demise of the financial planning industry, and it couldn’t have come at a worse moment. 

Scandal fallout

The industry was under immense pressure from revelations of misconduct at a Royal Commission appointed by the Government. 

So, converting the 80% of Australians without financial advice seemed more of a pipe dream than ever given the massive trust deficit.

A few years on, and the model is changing and for several reasons. One is that the business model for the advice industry is evolving, and robo and human advice are co-existing within the same service offering. 

So, instead of threatening the financial advice industry with extinction, robots are now helping save and transform it.

Scaling advice

One issue for the financial advice industry in reaching more clients has been the cost of servicing at scale. 

Robo advice works as an initial contact point as potential clients do their research. But once they reach a point in their engagement — and they are serious rather than being ‘tyre kickers’ — this is when the human adviser steps in and takes up the customer journey. 

This both cuts down the cost of delivering advice and puts clients in charge of the initial contact. 

Everyone knows there’s nothing worse than making a casual enquiry and then having a salesperson swarm all over you, so putting the robo piece first puts the control in the hands of the client who can then decide to proceed if the initial contact and information is compelling enough.

Overcoming AUM hurdle

Another evolution is the nature of the advice itself.  

At the outset, a client would get an asset allocation list and not much else, but that wasn’t  convincing many people, and some of them wanted something more holistic.

“Many people don’t go to financial advice because they don’t have the assets to be managed, and the whole advice industry is based on assets under management,” says Vince Scully, the founder of Australian advice website Life Sherpa.

Scully sold his original financial planning business around 10 years ago and spent much of the time since then pondering a business model which would engage Australian’s who were not using financial advice.

His response has been Life Sherpa, which takes a wider look at a person’s financial profile and looks at life needs, rather than immediate investment choices.

“Life Sherpa was designed to deliver advice affordably and [make it accessible] to that group of people, in their late 20s to early 40s, who are going through life’s big changes of coupling, nesting and parenting,” says Scully.

“We are looking for someone with a money problem, and we help them develop a journey to fix that problem which over time will involve their superannuation (or pension), insurance and a home loan.

“The Sherpa is a loyal and trusty assistant who shares their knowledge and the way ahead so you can get to your destination and leaves you to take the credit.”

Scully’s Sherpa is half robot, half human. Customers pay for levels of service and use the algorithmic machine built by Scully and his colleagues, which takes them to a certain point before the human is required for high level advice and execution. 

Eliminating bias

The initial robo advice also dispels perceptions of human bias in the product selection.

One example in the robo-human teamwork model is the purchase of life insurance. Most policies have “exclusions” for a variety of conditions, but the overwhelming evidence is that seeing an exclusion is a major red light to any consumer purchasing life insurance online.

With Life Sherpa, the human intervenes at the point that the client is getting confused about the exclusion, with their explanation and assistance helping the consumer’s confidence and smoothing the path to the final sale.

“Most people are focused on the cost of advice, and that is what led to robo advice. But it misses the problem that many people don’t want the products the industry is selling,” says Scully.

With this in mind, the ‘machine’ which drives Life Sherpa takes people through a series of questionnaires which helps them understand their attitude to money and investing, and which also informs later recommendations from the algorithm.

It is a model which is working because, as Scully says, “mathematics is easy, behavior is complicated.”

It would also seem that financial advice is becoming less complicated as the delivery model evolves, and as humans learn to work with their robot colleagues.