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Robo-advisors: The next Uber?

Debate about potential obsolescence of human advisors intensifies.

JOHANNESBURG – As an increasing number of financial services firms enter the market for robo-advice, tough questions are being asked about the future of human financial advisors.

Will robo-advice disrupt the market in the same way Uber unsettled the taxi industry? Will the financial advisor with the firm handshake and the comforting smile still have a job twenty years from now? 

Addressing delegates at the FPI Convention, Magda Wierzycka, CEO of multi-manager Sygnia, said a new generation of investors want to make investment decisions themselves and do it online.

But she expects that developments in this area will happen very slowly over the next 15 to 20 years.

Wierzycka said a financial advisor over the age of 50 with a client base in their fifties and sixties, is unlikely to see clients convert to a digital advice model.

“In fact, I would suspect that anyone over the age of 45 today is going to use a human financial planner going forward. They are not going to mandate a digital solution,” she said.

But investors in their twenties and potentially also thirties, are not going to use a human financial planner, she argued.

“If you are a financial planner in your late twenties, early thirties I would be considering my future,” she said.

Sygnia launched its robo-advisor in May this year. Robo-advisors are simple, online platforms where investors are guided towards a suitable set of investment products by assessing their investment goals, risk tolerance and investment horizon through various questions.

Wierzycka said for those individuals that have a R1 000 a month to invest and who are looking for simple investment advice tailored to their personal circumstances, robo-advice is not too simplistic, but for people who need help with complicated tax or estate duty issues, it is, at least at this stage.

Other panellists were more optimistic about the future of traditional financial advice, although they cautioned that human planners should consider what value they add to the process and how they could embrace robo-advice.

Theo Vorster, CEO of Galileo Capital and co-founder of robo-advisor SmartRand, said technology will become part of service delivery.

Any part of a financial advisory business that is purely based on a set of rules or a matrix will be automated in future, but true value-added services can’t be automated. This offers an opportunity for human advisors to build flourishing businesses that leverage off the automated parts of the business, but that will also provide additional value to clients, he said.

“The long and the short is: it is going to disrupt the market. To what extent? That is the question. My advice to everybody is make this your friend,” Vorster said.

“The change will be slower than you think, but the impact will be a lot bigger than you think.”

Incorporating robo-advice in a traditional practice may also offer other benefits, Vorster argued.

Regulators are very focused on suitable advice and informed consent. With an online system, there is an audit trail of everything the client did, he said.

Rob Pritchard, head of product and wealth management at IRESS, said when online trading was introduced a few years ago, there were stockbrokers who were nervous about its impact, but stockbroking firms who have embraced the transition have been very successful.

The growth of robo-advisors is likely to draw new entrants to the market, while it will also drive down the cost of investing and unlock new segments, he said. 

“From a business model perspective, we certainly do believe that robo can complement the existing practices out there. We believe it will appeal to a broad range of clients and potentially open up new market segments for you [traditional advisors],” Pritchard said.

Marius Kilian, director at 2IP Independent Investment Partners, said a number of large financial firms in the US are actually buying robo-advisors, not because they want to digitise the whole advice process, but to make their advisor base more effective and efficient.

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