Disruption provides opportunities for advisers

By [email protected] ·
February 19 2016

Disruption provides opportunities for advisers

The Australian wealth management industry may be one of the most sophisticated in the world, but it's under threat from the bottom-up.

Consider Acorns Grow, the father-son start-up founded in 2012, which has since reported over two million downloads of its Acorns "micro-investment" app. The app gives users the chance to "round-up" small purchases - a $4.50 loaf of bread becomes $5.00, for example - with the "change" invested into a diversified portfolio of exchange-traded funds. The app has now been released in Australia, and for balances less than $5,000 (the minimum balance is $5.00), users only have to pay a flat $15.00 annual fee.

Something like this opens the doors to investors at the earliest stages of accumulation, and also educates users about the projected long-term returns of different risk profiles (in this case, there are five).

A consumer focus

It's this consumer-focused, or investor-focused, mindset that permeates the ideology behind the kind of companies and technologies that traditional financial institutions consider "disruptive". Superannuation funds, for example, have been bleeding members to self-managed super funds for several years now, with many funds responding by providing "direct investment options" or "member-direct options" - essentially limited pseudo-separately managed accounts - with a view to retaining those investors who want to "do it themselves".

But the problem goes deeper than that. If the issue were simply that the average Australian wanted beneficial ownership of a parcel of ASX 200 shares and term deposits, it seems unlikely that the "disruptors" in the industry would be able to gain much of a foothold.

Meeting new demands

The demands these new services are satisfying are harder to quantify: it's a mix of engagement with existing digital/social platforms, ease-of-use and a low (or in some cases non-existent) barrier to entry. The easiest parallel to make, obviously, is the rise of Uber and ride-sharing in general - regulatory issues aside, Uber managed to answer many questions people had about public transport that they didn't even know to ask.

In this analogy, it would be easy to compare financial advisers to the taxi drivers - experienced professionals operating within an existing regulatory system, usurped by a more consumer-directed service that sidesteps that system. And as a result, self-directed investment technology can be (and has been) seen as a threat. But it doesn't need to be: if anything, advisers are better-poised to take advantage of these new technologies than the institutions and custodians behind them.

Digital platforms and new technology

Next generation digital advice platforms can be directly employed by AFSLs to allow self-directed investors to complete basic scaled advice processes using an automated risk profiling system. When the needs of a particular client become more nuanced, the software will then refer them to a financial adviser.

In this way, the technology is augmenting, rather than supplanting, the adviser value proposition.

This new model has specific utility with accumulators, an investor demographic that has been traditionally neglected by the wealth management industry. In fact, a significant amount of robo-advice offerings are still primarily catered to pre- and post-retirees, so any adviser who can take advantage of new technologies in a way that caters to prospective clients who are building their wealth (rather than drawing down on it).

Cerulli Associates director Scott Smith made a similar argument in the company's US Retail and Investor Advice 2015: Aligning with Investor Goals report, saying: "The ubiquitous growth of digital advice platforms is exactly the catalyst needed to accelerate the development of traditional advice providers to serve their clients moving forward.

"Instead of perceiving the growing prominence of digital tools as a threat of disintermediation, traditional advice providers have an exceptional opportunity to encourage their advisers to fine-tune their practice model to capitalise on identified best practices and use technology to enhance their client relationships."

Gail Pemberton is the chair of OneVue

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Disruption provides opportunities for advisers

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