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Online wealth advice is a reality

Financial advice in Australia has not been static. Fuelled by the superannuation guarantee system, the industry provides a wide range of services to investors; strategic advice, insurance, investment management, portfolio reporting, social security guidance, assistance navigating the superannuation and retirement systems, etc. The list goes on.

Unfortunately the infrastructure required to support financial planning services and regulation has grown unwieldy and costly. Most planners rely on cumbersome administration systems. A typical large practice financial planner is locked into a single or at best two or three investment platforms. This has reduced flexibility, and increased the cost of stand-alone investment advice.

A key part of the financial planning offer – investment advice – has become less tailored over the last 10 years. The need for better compliance, scalability and fee harvesting has meant that investors are often recommended benchmark-hugging model portfolios such as fund-of-fund offers, typically manufactured internally. The investment advice part of financial advice has become commoditised, making it less important as part of the overall financial advice value proposition.

What is the focus of ‘direct wealth’ or ‘robo’ advice?

Direct wealth is effectively a ‘cut out’ of the financial planning offer. It is not a ‘full-service’ offer, but concentrates on tailored strategic asset allocation and investment advice, without the complexity or cost of the complete financial planning administration and infrastructure.

In North America and the UK, direct investment advice is thriving. In these markets there is no problem with segregating investment advice from the broader financial advice offer.

There are three other important drivers of the growth of direct advice.

First, fees are coming down both in Australia and globally. But the cost of the complex investment platforms that Australian advisers are using means that these fees are not coming down quickly enough.

Second, smart phones have now been around for many years and we love them. They are always with us. For most Australians, young and old, this has become their primary conduit to information, purchasing of goods and services and interaction with friends and associates. Paper communication, talking face to face with people and even emails, are being replaced. This is a challenge for the traditional financial planning models that still seem to require endless paper and face-to-face meetings. In contrast, direct investment advice is easily completed using just a smartphone.

Third, we now have a better understanding of how investors think. Behavioural finance has alerted us to mental accounting where investors tend to think in ‘buckets’, however illogical that is. Unfortunately ‘bucket’ investing doesn’t quite fit with holistic financial advice – where there is usually one investment solution across a client’s entire portfolio.

This is the perfect environment for online direct wealth solutions.

More people need advice but are not willing to pay for it

As an example, take an investor with an SMSF. They have already paid for the superannuation framework and typically choose their own investments without the help of an adviser. This has worked well until recently; relatively accessible investments like term deposits and Australian shares have delivered good returns. Now, these self-directed investors are noticing that global markets and property have outperformed, while deposit returns have reduced dramatically and Australian shares have borne the brunt of the commodity market downturn.

Many SMSF self-directed investors have been hurt by their lack of diversification. They need advice about non-Australian markets and strategic asset allocation but are loathe to pay a financial adviser for the administration and strategic advice they don’t need.

The good news for SMSFs is that direct wealth or ‘robo’ advice can offer online tailored strategic asset allocation and security selection advice quickly, efficiently and at low cost. The trustee can receive a robust diversified portfolio in less than 10 minutes, using their phone or home computer. There is no need to pay for the extras that traditional financial advice provides (accepting that many other investors need these and are willing to pay for them) such as retirement strategy, budgeting, face-to-face meetings, costly administration and all that paper work.

Then there is the forgotten investor – perhaps an individual who has accumulated savings, received an inheritance or downsized their house. The money is not in superannuation, which is well catered for by financial advisers. This investor’s easily accessible choices are limited. They can put it into the bank, buy an investment property, buy some Australian shares or find a financial planner. The difficulty is that the financial planner will want to look at all of the investor’s portfolio in a holistic solution. Clearly, there is a role for such a broad offer, but many investors only want the money invested efficiently, not complete the work necessary for a 70 page Statement of Advice.

Direct wealth advice is the solution. Tailored strategic asset allocation and investment advice using online risk profiling includes quickly opening both a bank account and brokerage account, a process which can take many weeks with a financial adviser.

Direct investment advice is also more flexible for ‘bucket’ investing. Let’s assume that the investor splits their investment money into two buckets. The first bucket is a short term investment (say, 18 months), and the second bucket is more of a long term investment, say five years. The investor can open two accounts in the direct wealth channel, and simply alter the time frame for each account. This will produce tailored strategic asset allocation and investments to suit both buckets.

The other benefit of direct wealth advice is that investors have a transparent portfolio rather than the opaqueness of a multi sector balanced fund with many underlying managers. Using any device, investors can call up reports, see daily updates in portfolio value, redeem and invest additional funds. Direct wealth ‘robo’ advice is investment advice brought into the reality of our digital world.


Maggie Callinan is Chief Investment Officer of Indeksio, due to release in Australia in Q3/2015.


July 23, 2015

As a 77 year old male, I know you are on the right track doing your own finances! I retired in 1999 and sat in with about 6 advisers then found out they could not answer questions I had learnt myself, so I did my own. I have made mistakes but have learnt from them and am always seeking new ideas as it easily found on the internet and elsewhere, be willing to search and you will find, best of luck, Murray.

July 14, 2015

Good, the sooner the better.

My experience with financial planners as a Gen X, 38yo male with a respectable amount of assets, is that most of them are Baby Boomers and thus, don’t understand me or my position at all, instead, treating my “sub-500k pile of assets ex-house, ex-mortgage” as some joke and openly laughing about it.

When I saw another one from a fairly big, independent firm, they palmed me off to the junior partner, who, it turned out, I knew more than he did about finance and shares. They poo-pooed my index funds / LICs / ETFs and selected shares. That’s a worry, because if you are the smartest person in your team, you are in trouble. You are supposed to outsource these things to people who are better at it than you.

(And I am self taught with no formal background in business).

When the financial planners themselves are financially literate, really are well and truly focused on the person on the other side of the desk and not just salesman, then I’ll consider it.

Nigel Tate
July 14, 2015

This sort of article scares the heck out of me, this is clearly a simple unadulterated sales jobs. Where is the appropriate strategy coming from to determine how many buckets and with how much in each, surely this is clearly to role of a trusted adviser (Financial Planner). The "self directed" SMSF Trustees mentioned have suffered enough from the "no advice" model, why on earth would the writer suggest they do the same thing again simply using a tool to get them into a loss situation more quickly and efficiently. One of the major roles of a competent financial planner is to encourage clients not to make so many silly decisions, avoid the suffering of making the avoidable loss in the first place. Robo advice has its place, if only for ill-informed investors to gain the knowledge that real human advice is valuable, given that you should spend more time at the adviser/planner selection stage. If you look for and find a well credentialed and experienced Certified Financial Planner who is overseen by a good professional body you will have started on the right path.

July 14, 2015

Good article---but being in our late seventies,not being really savvy with the digital world and having taken all assets /funds from superannuation some 7 years ago because of fees and no really professional advice whatsoever where does one go for direction with assets now invested in Bank TD's and the sharemarket----another Financial adviser,'accountant or ?? -thanks

Kenny Thing
July 12, 2015

Hello Allan Teh, though it will not replace human totally it will differentiate those (financial advisors) that add in some form of robo advisory into their practice from those who not. This applies to both the complex financial needs or single need driven advisory where I reckon robo advisory will take a bigger share given the relationship in a single need context is based on pure investment results.

Allan Teh
July 12, 2015

Robo advisory cannot replace human totally, agree with you Kenny Thing!

Kenny Thing
July 11, 2015

Interesting comments Greg. Personal finance is an obvious area for some form of financial advisory. So far I have seen some solutions in the marktetplace (this part of the world) but the issue of addressing the emotional aspect for e.g. trade offs for retirement and shortfall in calculating the net worth of customers as many customers are business owners and have private investments are some practical issues. So there are still some elements of human interaction.

Greg Einfeld
July 10, 2015

Why does robo-advice need to cover investment only? It just so happens that all the robo-advisers in Australia today only cover investment. Surely there is more to sound personal financial management than investing wisely? What about goal setting, budgeting, super, retirement, debt and insurance?

Nonetheless investment is a great place to start in making advice easy, accessible and cost effective.

Stephen Huppert
July 10, 2015

Some thoughts on digital wealth advice from the perspective of the algorithm

Norman Pappous
July 10, 2015

Here is a superb blog post on one of the big-name robo-advisors -

Kenny Thing
July 10, 2015

Very good read on Online wealth advice Graham. The part on regulations and its impact on financial planning is refreshing. But I must say this approach is only applicable to those looking at investment needs only. For instance, as one's wealth grew and into pre or retirement stage their needs are more complex and pure online wealth may not be sufficient. Thanks for sharing!


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