Acuity Magazine, Australia: Cognizant’s Banking and Financial Services Leaders in Australia Discuss the Impact of Robo-Advisers on the Wealth Management Sector
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Carlo Lacota and Dushyant Kapoor |
“The emergence of robo-advisers, supported by the high adoption of digital technologies in Australia, is disrupting the traditionally intermediated wealth market,” write Cognizant’s Carlo Lacota, Head of Banking and Financial Services in ANZ, and Dushyant Kapoor, Head of Banking and Financial Services Consulting in ANZ. “Robo-advisers use computer programs to provide investment advice online. They typically charge less than half the fees of traditional brokerages, which cost at least 1% of assets under management.” Excerpts:
“Robo-advisers are appealing to not only the millennials, but also do-it-yourselfers, possibly looking to access ready-made portfolios in which to invest. Robo-advisers also work for passive investors who put their money into a black box of investments.
While the jury is still out on whether robots will take over wealth management, some guiding parameters are emerging that may help investors choose between robo-advisers and their human counterparts. For example, a robo-adviser may appeal to investors who want a “low-touch” mode of investing, feel more comfortable working online rather than just with a person, aren’t investing a large amount of money or in complex products, and are looking for cost optimal avenues of investing.
On the other hand, investors may opt for a human financial advisor if they want to be involved in their investments, are interested in strategic risk-taking, are investing a large amount of money, and are willing to include complex investment products in their portfolio.
In today’s connected world, access to information such as products, markets, investment returns and historical trends is available to anyone with a mobile device or computer. The challenges lie in identifying what to look for, being able to analyze search results and drive meaningful investment outcomes. Robo-advisers deliver this expertise by presenting relevant information/analysis.
A financial adviser, on the other hand, masks all the complexity involved in collating and analyzing information and presents the analysis in an easily understandable and customized manner to a customer.
An adviser’s expertise lies not just in analyzing data and presenting insights, but also in educating customers while answering their financial and non-financial queries to help address their anxieties around investing. This process of building trust is extremely difficult to replicate in an advice model delivered via a set of algorithms.
Many people prefer human advisers to online avatars due to perceived trust and accountability attributed to humans. But this attitude may be changing not just for the wealthy, but also in the general investor community.
The underlying philosophy that is emerging for robo-advisers as well as traditional wealth managers is that customers want both slick technology and the ability to speak to a person. This is particularly true in volatile markets or if their overall market exposure is high or spread across a number of asset classes.
The mathematical objectivity and perceived lack of bias of robo-advisers/software algorithms makes them attractive, especially to the younger generation and to the retail and mass affluent segments.
This lack of bias may well just be a perception, as the algorithms could have a bias based on their design. However, similar biases, if they exist in human financial advisers, may be harder to rectify than in a computer program, once identified.
The influx of robo-advisers (standalone or as part of a traditional wealth manager) is heralding structural changes in the wealth market. It is no surprise that financial institutions are taking robo-advisers seriously, even though the latter have a relatively small share of the market today. Their digital-native character, coupled with lower fees, makes them a potent disruptive force, setting new terms of engagement with customers that financial institutions need to adopt.
This does not mean the end of the traditional advice model, but potentially the start of a complementary or hybrid advice model that builds on the individual strengths of robo-advisers and human advisers.”
Click here or below to read the article that was first published in the April/May 2017 issue of Acuity magazine.
