Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 160

Will roboadvice exterminate traditional advisers?

A concise definition of roboadvice is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners. The question is, will this form of advice become dominant, exterminating traditional financial planners (to use a Dalek analogy)?

The answer is yes, of course, but only when robots take over the world. Between now and becoming slaves to the machines, financial advisers will be greatly assisted by changing technology. But not every planner will benefit. Roboadvice will vastly increase the market size through offering inexpensive advice, but some planners will fail, unable to deal with the ever-increasing pace of technological change.

Winners and losers

Many people lack confidence in managing their money and they will want face-to-face advice, but that does not mean technology will not materially disrupt the industry. Winners will be non-aligned financial planners, planning groups in small superannuation funds, and smaller banks. Losers will include major banks and bank-employed and aligned planners.

While always open to debate, my selection for winners and losers is based on:

  • Ability and willingness of organisations to adopt new technology
  • Burden of legacy systems holding back implementing new technology
  • Restrictions from having a valuable brand - companies who are very protective of their brand are often slow to adopt new technology, waiting for all bugs to be removed
  • Degree of ‘creative destruction’ occurring within the industry - those at risk of losing market share are more likely to look to innovation to remain competitive.

Australian banks have large IT budgets but most of it is spent on maintaining legacy systems or meeting changes in regulations and compliance. When banks do turn their hand to system development, it frequently fails, incurs major cost and time over-runs, and becomes prohibitively expensive.

Major banks are unwilling to risk their brand with start-up technology. A Chief Investment Officer of a very large super fund once told me that systems development now either costs less than $2 million or more than $200 million. There is nothing in between. Smaller start-ups are so nimble and inexpensive that new technology from this source is amazingly cost-effective. But a large organisation is unwilling to risk tarnishing its brand with a small start-up. Major banks are more willing to risk their brand from expensive technology failures so long as the developer is a well-known company.

Major bank wealth management groups risk placing too much reliance on building new platforms. The disruptor to platforms is the predicted increase in open APIs (application programming interfaces). Open APIs will mean:

  • Client investment and personal data can be sourced cheaply and safely. The planner, at almost no cost, can see their client’s position, in almost real time, with data presented in a useful manner with recommendations based on previously-agreed financial objectives and constraints.
  • Fund (and SMSF) administration and tax will be commoditised, driving down price.
  • Planners can execute transactions where they like. Planners will no longer be restricted to what the platform offers.

Bank platforms are yesterday’s technology. My winners are selected because they are organisationally smaller and experiencing some ‘creative destruction’ in their industry.

Size is important. If you are not the lion in the jungle, you better wake up running. Smaller organisations will have to be nimble to survive. Those who do survive, and there will be many who do not, will have an ability to make quick decisions with a high degree of management accountability. They are likely to have less to lose by realising that their historical technology spend has little to no residual value. Cheaper more powerful technology means smaller organisations can quickly develop a technological advantage over larger organisations. A smaller technology spend will not mean less capability. It might mean more.

Younger planners are also big winners with technology, not because their minds are youthful but because they need the business. Younger or new financial planners will see technology as a way of growing their list of clients, including those clients which more established planners thought were uneconomic.

Creative destruction refers to the incessant product and process innovation mechanism by which new production units replace out-dated ones.

The reason Australia is slow to adopt financial technology is the absence of creative destruction in many parts of the industry. Traditionally, superannuation funds do not go out of business because members are attracted to another fund with better products and services. But that is no longer the case. Many small and mid-size superfunds are losing members or are under pressure to merge with larger funds.

These smaller funds must adapt or lose their purpose for being in business. They have to adopt ways to improve member engagement and offer higher quality services at an ever-decreasing cost. They will have to engage with emerging technologies, as they don’t have the budget or capabilities to build their own systems. Their size, rather than being a weakness, will actually make them competitive, offering superior products.

Where are the financial planners?

Financial planners must decide where they are as technology emerges. There are warning signs that they are not prepared for the technology changes, including:

  • Their main browser is Internet Explorer or Safari rather than Chrome or Firefox.
  • They have a fax number on their business card.
  • They have just replaced their server in the office.
  • They have not yet tested or had any experience with a roboadvice product.

Technology is moving to a Netflix / Spotify business model. It can be tested for a very small amount of money. If it works, users can increase the subscription and if it doesn’t, they can terminate the service.

Financial planners must at least experiment with roboadvice and related technology, or they are at risk of not developing the management skills to deal with what will be a material change in the industry.

Conclusion

Technology will only get better. Information will become cheaper and more available. A financial planner will spend materially less time collecting and summarising data and more time with clients discussing important issues. Technology will release them from the cost and limitations of large platforms. Those contractually obliged to use platforms will be at a material cost and flexibility disadvantage.

Size and brand will be a disadvantage. Small flexible organisations will be the winners with more clients, higher margins and providing greater service.

 

Donald Hellyer is the former Global Head of Funds and Insurance at National Australia Bank and Chief Executive of BigFuture.

 

RELATED ARTICLES

Wealth management reimagined

Five charts show predicaments facing financial advice

Roboadvice's role in financial advice’s future

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Latest Updates

Investment strategies

Trump's US dollar assault is fuelling CBA's rise

Australian-based investors have been perplexed by the steep rise in CBA's share price But it's becoming clear that US funds are buying into our largest bank as a hedge against potential QE and further falls in the US dollar.

Investment strategies

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Property

Soaring house prices may be locking people into marriages

Soaring house prices are deepening Australia's cost of living crisis - and possibly distorting marriage decisions. New research links unexpected price changes to whether couples separate or silently struggle together.

Investment strategies

Google is facing 'the innovator's dilemma'

Artificial intelligence is forcing Google to rethink search - and its future. As usage shifts and rivals close in, will it adapt in time, or become a cautionary tale of disrupted disruptors?

Investment strategies

Study supports what many suspected about passive investing

The surge in passive investing doesn’t just mirror the market—it shapes it, often amplifying the rise of the largest firms and creating new risks and opportunities. For investors, understanding these effects is essential.

Property

Should we dump stamp duties for land taxes?

Economists have long flagged the idea of swapping property taxes for land taxes for fairness and equity reasons. This looks at why what seems fairer may not deliver the outcomes that we expect.

Investing

Being human means being a bad investor

Many of the behaviours that have made humans such a successful species also make it difficult for us to be good, long-term investors. The key to better decision making is to understand what makes us human and adapt.

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.