Mark Fordree

Technology is fast evolving the landscape of our industry. One such example, and relatively new in practice, is robo advice – where financial advice providers focus on creating a technology-driven relationship directly with investors.

Robo advice leverages client information and algorithms to build and manage automated portfolio allocation and investment recommendations tailored to individual clients. Typically used to build and manage portfolios of exchange traded funds (ETFs), the first robo advice proposition was introduced in 2008 by Betterment, with Personal Capital and Wealthfront initiating the next wave of robo adviser entrants in 2011.

Indeed, there are a growing number of providers and micro-investing apps which are leveraging ETFs to reach a fresh generation of investors. Offering a diverse portfolio which can help spread risk, ETFs have appeal for the millennial investor who is attracted to the ‘under-the-hood’ factor – the transparency to see exactly what you’re investing in. Robo advice is growing fast with the digital advice market set to top US$83 billion by the end of 2016, according to a November report by Cerulli Associates. However, according to Jeroen Buwalda, Asia-Pacific Wealth and  Asset Management Advisory Leader at EY, with improving mobile technology increasing clients’ ability to receive digital advice every year, this figure represents just a fraction of the total assets worldwide that could be managed – estimated at a whopping US$150 trillion.

So what factors might be pulling clients towards robo advice and away from traditional advice offerings?

Robo advice relies on a combination of a simplified client experience, lower fees and increased transparency, to offer automated advice directly to investors. Cost and scalability are broadening the market for financial advice, allowing robo advisers to engage client segments that can, at times, be out of reach to traditional advisers. Digital advice also plays well to the growing preferences of a new generation of wealth managers – offering more control, digitally savviness, and the flexibility to access advice anywhere, at any time.

Mark Fordree, the CEO of Ignition Wealth – a digital advice platform – is in agreement. He believes that clients are increasingly attracted to the relatively low costs and ease of access offered by digital advice platforms.

Certainly, a recent survey from EY found strong evidence of the growing popularity of robo advice among clients[1]. As many as 59 percent of clients noted a preference for digital advice, compared to just 35 percent of wealth managers. The survey, which interviewed more than 2,000 individuals and 60 wealth managers globally, also found that just 28 percent of clients preferred face-to-face advice, compared to 66 percent of wealth managers.

Speed of engagement appears to be a clear factor driving this shift. EY’s research showed that it can take as little as four minutes to open and fund a typical robo advice account. In comparison, it can take up to 50 days to develop a relationship and on-board a wealth manager or private wealth manager.

The research points to a clear opportunity for traditional advisers to adapt and evolve to reflect the preferences of a new generation of clients. And this needn’t be an ‘all-or-nothing’ approach. The challenge for advisers is they often need to meet the distinct needs of two different types of clients: older clients, who are typically focused on retirement solutions and legacy planning, and the next generation of clients, who are looking for innovation and flexibility from advisers.

To meet these shifting demands, robo advice can be scalable and there can be varying degrees of digitisation – from full automation (involving no human adviser) to a hybrid model resting primarily on digital advice, but with the added option to call an adviser to receive human advice. Adviser-assisted models see clients continue to engage with an adviser, supported by digital tools to help the client understand the impact of their investment.

Ultimately, the human touch of a financial adviser isn’t going to go away anytime soon. For most clients, the ability of an adviser to talk about complex matters and articulate complex investment philosophies is still incredibly important.

Rather, digital advice has the potential to be the adviser’s ‘best friend’, according to Mark Fordree and Jeroen Buwalda. They note that, when implemented correctly, robo advice could become the single biggest contributor to an adviser growing their client base profitably. In one such example, they note that many advisers stand to benefit from utilising a robo advice component within the areas of fee transparency and access to advice, to help clients better understand the financial advice they are receiving.

So, advisory firms may need to embrace new technologies in order to meet clients on their own terms. But this doesn’t mean replacing human advisers. Robo advisers are widely expected to continue gaining market share and investors are seeking greater value from their financial advisers, along with a clearer understanding of services provided.

Combining the human touch of an experienced financial adviser with the logic, fee transparency and accessibility offered by a robo adviser can be a powerful combination for an adviser’s practice model.

By Shaun Parkin, head of SPDR ETF

[1] EY 2016 Global Wealth Management Report – “The experience factor: the new growth engine in wealth management”

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The search for yield after the reduction in the cash rate.

The recent decision by the RBA to lower the cash rate .25 basis points has some investors re-evaluating their current income strategies. In the search for income, one of the most popular strategies is equity investing because of the regular payments of dividends, the possible tax benefit offered by franking credits, and low interest rates offered by traditional income sources such as cash deposits.

But the market volatility this year has some investors asking if it is still a worthwhile option for accessing income. The case for equity income investing in a low-rate environment can be made when you look at the potential for equities to provide attractive income returns compared to cash or bonds (average one-year term deposit have fallen from 6.1% Feb 2011 to 2.4% Feb 2016[1]) and offer a potential stable income stream for investors.

However, investors need to take into take into consideration the Australian market’s concentration when building their income portfolio and consider global equities to improve diversification. Previously, only available to institutional investors, global equity income strategies are now easily accessible using cost-effective ETF products as building blocks of an income portfolio.

Although international high yield investments do not carry franking credits, they offer access to attractive equity valuations in potentially unvalued markets and benefit from structural trends across the global economy, including growth in emerging markets.

Using an ETF like the SPDR S&P Global Dividend Fund (Ticker: WDIV), which tracks the S&P Global Dividends Aristocrats Index representing high yielding companies with a history of stable or increasing dividends, investors can build a diversified income or yield seeking portfolio. Additionally, through WDIV investors are able to access high-yielding sectors underrepresented in the local market including utilities, energy and healthcare.

Regardless of whether you look local or global for income, investors must balance the benefits of the strategy with potential risks, including the risk that companies may cease to issue dividends or reduce their payouts in difficult markets, as well as currency and political risks related to global investing.

 by Shaun Parkin, Head of SPDR ETFs, State Street Global Advisors Australia

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[1] RBA, March 2016

Disclaimer: Investors should read and consider the relevant Product Disclosure Statement (PDS) for an ETF carefully before making an investment decision. A copy of SPDR ETF PDSs are available at www.spdrs.com.au. The material is general information only, should not be considered a solicitation to buy or sell a security and does not take into account your individual objectives, financial situation or needs.

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