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How technology is forging the ‘guided advice’ movement

by Matthew Smith | 09 Jun 2016

Rather than the beginning-of-the-end, robo-advice is becoming the starting point for professionals looking for new opportunities from the “guided advice” movement.

The annual Stockbrokers Association convention in Melbourne was the first opportunity for a number of financial advisors and would-be wealth management professional to dig a bit deeper into technology-assisted financial advice beyond the “robo-advice” moniker that’s been popularised in mainstream press headlines. 

“At first they saw it as threatening — we had a full room with about 300 to 400, mostly traditional stockbrokers, many of them looking to transition from transactional advice to a more holistic wealth management offering,” says John O'Connell, Macquarie Bank’s banking and financial services CIO, who used the forum to explain the investment firm’s OwnersAdvisory.

“Before long they were enthralled,” O'Connell describes, pointing to the part he expects Macquarie’s new platform and other similar technologies to play in the journey many of the attendees and other professionals are on to figure out where they fit within the future financial advice paradigm.

Macquarie’s OwnersAdvisory is the latest incarnation of so-called “robo-advice” — a monthly subscription service giving individuals access to information and tools to make their own investment decisions. Forty-five dollars a month gets you access to a portfolio modelling tool, which can produce a statement of advice (costing an additional $55 per SOA) taking into consideration an individual’s goals, risk tolerance and existing investment portfolio.

What’s threatening about Macquarie’s offering is the potential disintermediating effect it could have on investment advice, as more individuals get the tools to self-administer their own investment advice.

But what’s enthralling about OwnersAdvisory and other similar platforms and technologies in the advice space — as the stockbrokers found out — is the potential they will unearth both for advisors and clients and the industry recalibrates its place in the value chain.

Re-thinking advice

“This is really the full unbundling of financial advice … What we’ve done hopefully is reengineered the process of getting high quality advice and put it into the hands of customers,” O'Connell explains.

OwnersAdvisory launched in February after two years in incubation. At the front end is a user interface with general market and company listed commentary; at the backend individuals are linked via factor analysis to recommendations of 30,000 stocks, unit trusts, listed investment companies and ETFs in the investment firm’s research universe.

The system is the next stage of evolution from the likes of fintech startup, StockSpot, and publishing company, InvestSMART, which link individuals to a mix of listed investment recommendations based on portfolio construction methodologies.

A number of investment firms globally are rolling out their robo-advice solutions — in the United States, funds management behemoths Blackrock and Invesco have invested heavily in the technology and partnered with wealth management firms. Fidelity, Vanguard and online broker Schwab have built their own solutions. Meanwhile the big US “wire houses” including Morgan Stanley, Wells Fargo and Bank of America Merrill Lynch are moving into automated advice more gingerly as they account for their existing intermediated wealth management models.

Locally, superannuation funds are testing the concept while some dealer groups are experimenting with their own “direct to consumer” models.

Guided advice

What stands out in the Macquarie offering the most is possibly what it doesn’t provide — OwnersAdvisory is an equities-focused offering so it doesn’t consider direct property although it does provide advice on listed real estate trusts.

Also the Macquarie solution leaves all of the implementation of the recommendations up to the individual user. 

“The system says ‘tell us what you own’, it doesn’t matter where those investments sit, the execution venue is wherever you want it to be, the concept is based on a “guidance” approach so users can execute wherever they want,” says O'Connell.

The development of the Macquarie system was based entirely on solving what O'Connell describes as the two major “pain points” experienced by investors seeking guidance in the share market: they are time poor, and when they do invest they get emotional because they have a fear of missing out and end up making poor investment decisions, O'Connell summarises. 

“During our studies we found self-directed investors’ portfolio weightings were generally wrong, and their timing was wrong too,” he says. 

The next stage of Macquarie’s technology-enabled advice roll out will be within three months when the firm launches a “business to business” version of OwnersAdvisory aimed at advisors who want to use the “guided advice” approach with their current or prospective clients.

Under the consumer focused version, SOAs are produced under the Macquarie Equities Australian Financial Services Licence. Under the B-to-B version, advisors will have the option of using the Macquarie Securities Licence or their own licence, depending on how much of the firm’s IP is used to provide the advice.

Unbundled opportunity

Macquarie is one of a number of solution providers using technology to unbundle the advice offering, a process O'Connell and others believe will disrupt the existing wealth management model which is predominantly institutionally owned.

It’s possibly no surprise Macquarie is aiming its service at current and aspirational independent financial advisors. 

“Certainly we’ve seen a drift of advisors looking to come out of dealer groups and institutions and looking for new ways and new technology to service their clients,” he says.

HUB24 is one of a handful of software companies designing solutions for independent financial advisors who might previously have felt trapped within large institutionally owned dealer groups because of the superiority of their technology.

“What’s changing now is advisors don’t have to be part of a really large dealer group to have the best financial planning solutions,” says Andrew Alcock, HUB24 chief executive in conversation with FINSIA’s InFinance

“The way advisors access tools is changing too, they can access them on mobile, on apps, on their desktops. They can make the experience interactive or guided for their clients,” he says.

“Advisors can also choose to pick up some of the investment management piece and build a portfolios of direct stocks using the technology. More and more people will able to leave big dealer groups but still have access the same tools as the big institutions,” Alcock says.

This democratisation of technology will spark fear in the minds of some, but will represent an opportunity for others.

“They were blown away,” says Macquarie’s O'Connell of the reaction to the demonstration of the backend of the OwnersAdvisory system at the recent Stockbrokers Association convention.

“The granularity ends up being the main fascination — it can get down to the minute detail where it recommends a user sells 200 BHP and buys 200 National Australia Bank shares,” he describes. 

The software is designed to run a model portfolio analysis and then match the client’s existing portfolio to an ideal portfolio set within the parameters of the efficient frontier. 

Will the direct-to-consumer model take off?

“I’ve developed what I think is an elegant solution to the individual investor’s pain points, whether that’s what they’re looking for or not, we’ll see,” says O'Connell of his take on the next evolution of robo advice.


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