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Roboadvice a game-changer: Resnik

Roboadvice is being tipped to be the most significant development in the delivery of financial advice in this country in the past three decades.

Thursday, November 19th 2015, 5:59AM 2 Comments

by Susan Edmunds

Paul Resnik, of risk profiling firm FinaMetrica, has released a guide to roboadvisers.

He said a number of roboadvice developers had approached his firm because it supplied the risk tolerance facility many used in their algorithms' calculations.

Resnik said he expected roboadvice to change the financial advice sector in lasting, subtle ways.

"It will soon be hard to imagine the way the world was before they existed. Roboadvisers are likely to be as great a disrupter to the delivery of financial advice as Uber is to public transport. It could be an expensive mistake to make an uninformed decision to operate a roboadviser or to choose to disregard or dismiss them."

But he said financial advisers need not think they would lose their jobs to roboadvice.

“It’s not something New Zealand advisers should be worried about. Imagine if you were a banker 20 years ago and someone said they were going to put up ATMs, you would think you were going to lose jobs because an ATM competes with what you do as a bank teller.  But now it’s just a channel some people prefer. Bankers probably now have a richer life, problem-solving, opening new accounts, not just doing the mundane stuff. I would equate roboadvice with ATMs.”

The FinaMetrica report points out advisers may need to offer something extra to cement their point of difference over roboadvice.

"Their advice will be low cost to deliver (although perhaps not low cost to market and promote), consistent and make it easier to maintain meaningful conversations with customers about their money through highly effective automated communications. But, overall, we see adviser jobs as being at risk more at the margins – we don’t see mass lay-offs of financial advisers to be replaced by roboadvisers."

Resnik said it was likely that eventually everyone in the financial services supply chain would have a robo offering, whether it was direct to consumer or a tool for advisers to use.

Large players in financial services could use roboadvice to lower their back office costs or open new distribution channels.

“At the same time, that very same technology in the hands of a disruptive new-entrant could strike a deathblow to many established financial services firms. With roboadvisers, the competitive question might become ‘Do you remember BlackRock and Schwab? They used to be in financial services back before Apple incorporated its roboadviser into the operating system of the iPhone 8.'"

Resnik said he would encourage New Zealand providers to develop a roboadvice offering to take to the world. "If you're going to build one, don't just build it for New Zealand."

Tags: roboadvice

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Comments from our readers

On 19 November 2015 at 10:57 am R1 said:
Given that 99.7% of people switching KiwiSaver schemes do not get personalised advise it is pretty clear Roboadvice (with human robots) is already a very big part of the NZ scene but the fees being paid are extortionate. While investors continue to get a raw deal and the FMA sits on its hands we may see more providers, perhaps lower fees but many/most investor with the sellers/robots products rather than the right portfolio of assets for their personal needs. This current regulatory review has the potential to address this shameful situation but anything I have heard so far suggests this will not be the case. It is about time the FMA showed some real leadership and put investors interests first.
On 19 November 2015 at 5:17 pm Mr UCITS said:
I would hope that everyone reading this article (as well as those who wrote it) would know the origins of the term roboadvice.... It was coined in the USA where an "investment advisor" is what we in NZ call a fund manager.

A robo advisor is simply an automated, low cost, algorithmic fund manager designed to challenge the big fund management houses and steal some of their mutual fund market share.

The only "advice" component is typically an online financial goals questionnaire and a risk profiling tool which then tells the investor their recommended growth/income split for a portfolio of ETFs.

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