Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 227

Are robo-advisers relationship-ready or one-night stands?

So, you’ve met the perfect robo-adviser and it’s everything that your human financial adviser isn’t. On call 24/7? Check. Available on any device or computer? Check. Totally into you? Check, check and check … or so it seems from all the promises made on the home page.

But before you go jumping into a relationship with that robo-adviser, think twice and do something more. It may only want the financial advice equivalent of a one-night stand.

Look inside its heart

Robo-advice is simply an automated financial advice process, most commonly leading to a recommended investment. Instead of a person asking questions, you respond on a computer. Then the computer reviews your answers and makes a recommendation, rather than a person making a judgement about your situation.

This can be good or bad. When it’s good, it makes advice available to a lot more people who might have missed out on seeing a human. But when it’s bad, these people can end up receiving advice that might not be suitable for them, and then the relationship does not last.

To find out if a robo is good or bad, find out what makes it tick.

Will it ‘ghost’ you?

Online dating has introduced the concept of ‘ghosting’, where someone in a relationship simply vanishes. A partner suddenly cuts communication with the person they have been seeing, and the person realises the partner has lost interest.

Many robos are ghosts-in-waiting.

Investors became excited about robo-advisers ‘doing an Uber’ on financial advice, so a lot of Silicon Valley types pour money into developing ‘entrepreneurial’ robo platforms. But many have already vanished and many others soon will because they could not attract enough investment to make any money. Betterment, based in the US, is the world’s most successful entrepreneurial robo but it has never made a profit and relies on raising new equity to survive.

Robo offerings from well-known banks, super fund and financial institutions are different. Their job is not to go out and win new money. It is to advise the existing customers more quickly, cheaply and consistently than a human (or many humans) could do. They are far more likely to be there for you tomorrow.

Is it really a ‘keeper’?

Even among financial institutions not every robo is a ‘keeper’. Robos are only as good as the computer programmes that drive them, called ‘algorithms’. These sound super-smart, but are not. An algorithm is simply a formulaic way of responding to an input, like:

  • It is cloudy, I will take my umbrella
  • It is sunny, I will not take my umbrella

However, what if it is cloudy, but we will be parking underground? What if then we decide to briefly walk outside to go to a restaurant? Should we still take an umbrella? What if it’s sunny when we get when we are going – where do we put the umbrella then?

Financial planning questions tend to be like that. Things can quickly become complicated. Robos are evolving and some are beginning to contemplate those highly complex issues, like aged care and estate planning. But writing complex algorithms to take account of many different variables is mind-numbingly hard and expensive, so most people don’t do it.

Instead, they’ve given most robos limited abilities and scope. Mostly, they are confined to recommending an investment from a range of ‘off-the-shelf’ options which is matched to you through your answers to online questions.

Investing is a big, risky deal. To make investment recommendations, the robo must be asking a LOT of questions – right? Unfortunately – wrong. Some barely want to know anything before urging you to invest with them.

It’s all about you (or should be)

In the United States, ‘Target date funds’ only want to know one thing about you: your birthdate. The fund then allocates your assets and automatically converts equities into cash as you age. Personal circumstances, tax considerations and other investments simply don’t come into the mix. There is no ‘right’ number of questions to look for, but one question is probably not enough.

Ideally, before making an investment recommendation, a robo-adviser should ask you questions about at least three things:

1. Risk tolerance: At the bare minimum it should determine your risk tolerance – that is, the amount of investment risk you will feel comfortable with should markets fluctuate.

2. Risk capacity: Ideally, it would then inquire about your risk capacity – that is, if this investment went badly, could you still achieve your goals?

3. Risk required: A good robo will also talk about ‘risk required’ – that is, how much risk you need to take on to reach your goal given your starting point.

But there is a trade-off. Some people get bored answering questions, so many robos have quite deliberately kept their questioning brief, although this makes their recommendation less precise.

‘Swipe left’ on the losers

Robo-advisers must meet the same regulatory and ethical requirements that human advisers are required to meet. Don’t put up with automated advice that is self-centred or uninterested in finding out about you. Like a judgement on Tinder, swipe them left out of your life.

 

Paul Resnik is Co-Founder and Director of Finametrica, a risk profiling system that guides ‘best-fit’ investment decisions.

RELATED ARTICLES

Five charts show predicaments facing financial advice

FoFA, the Failure of Financial Advice, Take 2

Has FoFA become the Failure of Financial Advice?

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Super crosses the retirement Rubicon

Australia's superannuation system faces a 'Rubicon' moment, a turning point where the focus is shifting from accumulation phase to retirement readiness, but unfortunately, many funds are not rising to the challenge.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.