Asset allocation and investment advice services will face the greatest risk from recent fintech developments, according to Macquarie, with robo-advice platforms predicted to see rapid improvement.
Speaking to SMSF Adviser, Macquarie chief investment officer, banking & financial services, John O’Connell said the industry is only seeing the very beginnings of robo-advice with many of the offers on the market currently based on a fund of funds model where the robo-adviser invests in an underlying menu of ETFs.
Robo-advice platforms across the market will become increasingly granular, extending beyond just ETFs down to individual bonds and stocks, he said.
“If a financial planning firm sees its value in doing the asset allocation of people’s portfolios, that will come at a risk [to their business],” Mr O’Connell said.
The engines are becoming so good they will be able to improve the returns, and do a better job of that asset allocation and investment advice selection.
Financial advice firms should instead focus on strategic areas of advice – including discussions about whether a client should have an SMSF, how they should house their assets, what is the right amount of gearing for them, what is the right risk spectrum and how they are going to shift money between themselves and their children, Mr O’Connell said.
“It’s definitely the financial planning firms that feel their core service is asset allocation that are under threat,” he said.
For accounting firms on the other hand, particularly those within the limited licensing regime, robo-advice can potentially be a “match made in heaven”.
“Accounting firms haven’t provided those investment services in the past, so for accounting firms, it actually opens up a potential improvement or a wider array of services for them,” Mr O’Connell said.
Accountants have tended to stay away from the investment services because it hasn’t been their area of expertise and they haven’t had the time to keep up with what’s happening in the markets.
“But they’ve now got really solid engines that are actually able to help them understand what’s happening in markets and help them make those decisions,” Mr O’Connell said.
“If you use the limited licensing regime to do what I would term the upstream advice, in other words, the financial planning itself, the structuring and setting up the SMSF and then you use the robo-engine to perform the downstream day-to-day advice, then you’ve basically got the two licences working hand in hand.”
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