Integrating robo advice into your business

By Lachlan Maddock ·
October 22 2019

Integrating robo advice into your business

Robo-advice is widely touted as an exciting new frontier but, like any innovation, has both its benefits and hazards. While some commentators have predicted total industry disruption, the way forward is more likely to be characterised by the integration of man and machine.

Finance writer Eric Rosenberg told Adviser Innovation that advisers understand the benefits of lower fund costs and automated allocations, so they often use robo-advisors as part of the total investment package for clients with a good fit.

“For long-term investments like retirement, they may point clients to a robo-advisor. For shorter term needs like college savings, a home down payment, or a vacation fund, robo-advisors probably are not the best fit," Mr Rosenberg said.

“Knowing how to piece the puzzle together is key for advisors looking to integrate robo-advising into their business.”

Robo-advisers, which offer a number of pre-built portfolios that can be assigned to customers based on sign-up data, make handy savings vehicles. They’re good for accumulating wealth – but when it comes to the vagaries of planning for retirement, the human touch is still a must.

“If you work with a human advisor, they tend to understand more nuances about your financial situation and investment goals and can shift your strategy over time to accommodate,” Mr Rosenberg said.

Robo-advisers also can’t handle some of the emotional challenges of advice.

“Robos are very sophisticated and can handle a number of complex scenarios,” Manish Prasad, chief executive of Ignition Wealth.

“With that said they still can’t show the level of empathy needed for some cases and there are just some decisions that need a human. A good example at Ignition is when customers are seeking insurance advice and have special needs children. This is a situation when a human adviser needs to be involved.”

A human adviser can handle a broader range of variables and better understands the individual circumstances of a client. But it’s helpful to be able to delegate the grunt work to a robo-adviser, which can perform automated tax loss harvesting and other portfolio adjustments on the fly.

“Robo-advisors don't have emotions and don't make the same types of mistakes as human advisors,” Mr Rosenberg said.

“Humans often try to time the markets and make expert trades, but in reality most "experts" perform worse than popular index funds.”

But full-scale disruption remains a long way off. Until then, man and machine will be equal partners.

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