The more things change

It wasn’t that long ago that our industry was struggling with too many clients, not enough advisers and a perceived mis-match between fees and value. These were essentially the drivers of ‘Robo – advice’.* Robo – low fees, no human, digital – the perfect solution for our new world it seemed at the time. Build it and they will come. Perhaps not!

(*perhaps even misnamed at the outset as it presented more like ‘robo investing’, there was little or no “advice” on anything other than the investment portfolio).

It seems to us that these same set of challenges exist today as they did almost twenty years ago and the underlying problems remain. The solution as promised by Robo has yet to be fully realised and we remain as a country faced with:

• A complex (and confusing to many) set of taxation, superannuation, retirement and social services systems
• The need for quality, professional advice remains as paramount as ever – it’s growth accelerating, clearly being driven by the wealth transfer phenomenon.
• The cost of advice remains a considerable barrier with value seemingly proving ‘illusory’ for many to grasp and appreciate. Rising, unrelenting cost of living pressures don’t help!

And yet as an advice industry there are insufficient numbers of advisers to serve these clients. With many of those who remain now looking to exit over the next few years, it’s painfully clear that the estimated 1.1% net growth rate in adviser numbers* won’t be sufficient to serve the needs of so many Australians.

?????????????? * reaching 16,708 by 2029 (The Big Shift – Advice 2030, Iress/Deloitte)

There can be no doubt that tech has a major role to play in helping to resolve the above. Just as it did when Robo first appeared.

Perhaps a few observation/lessons from our 15+ years of hands-on experience working in the States and their Robo journey can provide some pointers for us today?

The more things change, the more they stay the same

As crazy as it might seem (when assets under digital advice in the States have surpassed one trillion dollars (US), the Robo revolution appears to have hit a snag.

Profit is proving elusive – inflow is one thing, profitable inflow another. This has led to some providers increasing their fees – in doing so, somewhat ironically, reducing one of their main points of difference (lower fees).

Other groups have chosen to withdraw from this particular channel, selling their client accounts to others – JP Morgan Chase and Goldman Sachs in the last year for example.

And for those who remain, most seem to have adapted their business models – instructively by adding a human option to their offer. It now sits proudly beside their self-directed and advisor-led platforms. Clients like access to people even if they prefer to interact digitally.

Robo learnings along the way:

• It’s expensive to build, maintain and promote
• Really big scale is needed
• A longer term time frame and perspective is definitely needed
• Underlying strategy is always, in our view, ‘work in progress’ and it should be objectively and pragmatically re-evaluated on an ongoing basis. In the case of Robo, while it was initially seen as the preferred method for younger clients and/or clients who initially didn’t have the money or appetite for fees (but maybe will a little later on - wealth transfer anyone?), Robo has seemingly morphed with older clients also being attracted to digital solutions.
• Business models will need to evolve and adapt as circumstances dictate.
• At the end of the day, ROI will govern – eventually determining if you stay the course, change your course or exit ?

Back to Australia and our gap challenges – yes, tech has a major role to play – to enable and facilitate but it can’t do it all for everyone. As we opined in our August blog – technology can help but it won’t replace the need for?cultivated Relationships. The advice business is all about helping people - BusinessHealth

How this message is communicated, received and acted upon remains a challenge for every player in the advice business.

For your consideration.

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