“Robo-what?” is the usual response from friends when I mention what it is we are doing. Judging by the blank look on most people’s faces, robo-advice, or robo-advisor is not a term the majority of New Zealander’s are familiar with. So here’s a quick rundown, as you can bet you’ll be hearing a lot more about it.
According to the internet’s source of all knowledge (Wikipedia or course), a robo-advisor is “a class of financial adviser that provide financial advice or portfolio management online with minimal human intervention”. So now that we have got that out of the way, what does this actually mean, and why should you care?
Robo-advice is effectively an automated,
online financial adviser that helps people invest their money or make other financial decisions. It comes in many different shapes and forms; some robo-advice companies offer purely automated advice with no human interaction, others may have some interaction with a traditional financial adviser or portfolio manager, some help you pick which stocks to invest in, others provide financial planning or budgeting tools. They will often run complex algorithms in the background to help you decide how to invest your money, and which investments to make.
Why should you care? Robo-advice is transforming the traditional financial advice model, and opening the doors for the average Joe Bloggs to access expert financial and investment advice that won’t cost an arm and a leg. In Australia, it’s estimated that 80% of people can’t afford financial advice, and that’s the gap that robo-advice aims to fill.
The traditional financial advice model can be broken down into various parts, and many (if not all) of those parts can be automated and able to be widely distributed online. This is significantly driving down the cost associated with accessing advice, and in many cases a certain level of advice is provided for free. On top of cost savings, the other key advantage is that robo-advice is generally targeted towards those with smaller amounts of money to invest, and does not require a huge initial investment amount to be able to get started.
Robo-advice has become hugely popular globally since the first well known U.S. companies Betterment and Wealthfront launched between 2008-2010, and forecasts are that robo-advisers will manage around 10% of global assets under management by 2020 – that’s $8 trillion!! (Kocianski, S., May 2016 BI Intelligence). According to this report, the top factors driving its popularity include lower costs, comparable returns, good user experience, and increased access.
Despite global popularity, New Zealand has been slow on the uptake. The pace is likely to pick up soon though as changes to our financial market regulations become more accommodative towards this type of advice & investment, reflecting the Government’s recognition that robo-advice can help to fill an important gap in the market.
We recognised the value of robo-advice and the huge benefits this could have on the New Zealand population. Our local market experience meant we were able to see a clear opportunity to bring robo-advice to the New Zealand market, in a way that is tailored to our unique investment landscape. We have been working hard to bring you Ilumony, New Zealand’s first robo-advice platform – grafting intelligent technology with a human touch.
We’re nearly open for business, and will be providing free online KiwiSaver advice to all New Zealander’s, helping to put more money and better returns into people’s KiwiSaver accounts. But we’ve got lots more up our sleeve so to speak, and we’ll soon be helping people invest outside of KiwiSaver, and in doing so, starting the transformation of New Zealand investment markets.
Join us on the journey, by registering at http://www.ilumony.nz/
Kocianski, S. (May 2016). The Robo-Advising Report. BI Intelligence.
Disclaimer – Rachel Strevens is an Authorised Financial Adviser (AFA) and Director of Ilumony Ltd, a company providing financial services and advice on KiwiSaver. A copy of her disclosure statement is available free of charge on request from firstname.lastname@example.org Information provided in this article is of a general nature only, and is not intended to be personalised financial advice.