Earlier this year we explained the meaning of a robo-adviser and how the technology first started, now research house Rainmaker Information has released data showing that it believes the industry could grow to be worth $60 billion in Australia.
According to Rainmaker Information, while the robo-advice industry is still relatively small in Australia it is growing quickly, and has proven to be both cost-effective and trustworthy.
Robo-advisers are digital financial planning and investment services that offer recommendations to investors, typically based on a questionnaire analysed by a computer algorithm to determine the investor’s risk profile.
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The recommended investment options or solutions are often assembled using a suite of low-cost products such as exchange traded funds (ETFs), which is how they manage to be so cost-effective.
Robo-advisers provide this financial advice based on mathematical algorithms designed by human advisers, investment managers and data scientists. However, the algorithms are executed by software programs and do not require a human adviser to impart financial advice to a client.
According to the Rainmaker analysis, there are eight robo-advice providers in Australia that are speculated to be collectively advising on several billion dollars in funds, although the figure is only an estimate as only two of the eight funds identified (Stockspot and InvestSmart) publicly report on their funds under advice.
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Rainmaker executive director Alex Dunnin said more people were starting to consider robo-advice as they become familiar with the concept.
“Robo-advice is becoming an increasingly attractive proposition in Australia as it is a very cost-effective way for retail investors to obtain limited financial advice and be connected with packaged investment solutions,” Mr Dunnin said.
“The financial adviser sector shake-out that has happened over the past few years, where the number of advisers has dropped from 28,000 two-and-a-half years ago to 19,000 now, means that digitally delivered robo-advice could rapidly become incredibly important for millions of Australian consumers.”
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According to Rainmaker, Australian robo-advisers offer an average of seven investment solutions. Stockspot was found to offer the most with 13 investment solutions.
Seventy per cent of the available options are diversified, meaning they mix their investments across exposure to shares, property or bonds.
Fees
What makes robo-advice so attractive is that average fees of just 0.3 per cent per annum are charged, based on a $10,000 placement, Mr Dunnin explained.
When combined with the embedded investment fees of the underlying ETFs, total fees are likely to be around 0.4 per cent to 0.5 per cent per year. That is about half the total fees charged by the average super fund in Australia.
The ETF brands used most often by Australia’s robo-advisers are BetaShares, iShares and Vanguard.
In Australia, robo-advisers are regulated by ASIC and must have a financial services licence. They also have a fiduciary duty to act in the best interest of their clients.
Are you interested in trying the services of a robo-adviser? Would you hesitate? Why not share your thoughts in the comments section below?
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