Why Your Next Investment Advisor Could be a Robot

Macquarie Group is set to revolutionise the way Aussie investors manage their money. The bank is introducing a new, robot-advice program called OwnersAdvisory (OA). The program aims to help investors figure out where and how to invest their money.

If that sounds like another footstep towards an AI takeover, it’s not far from the truth.

Societies have grappled for centuries with the looming threat of automation. Yet as history shows, once people embrace disruptive technology, they come to love it.

Technology is disruptive by nature. Think of Uber and its effect on the taxi industry. Or YouTube and Netflix, and how they’ve reshaped media consumption.

The invention of cars replaced the need for horse carriages. The car industry today employs millions around the globe. At its height, it was one of the biggest employers in Australia. Yet it too has become more automated. Many have lost their jobs. And there are doubts about whether humans will have any kind of future in the industry.

It’s all part of the technological cycle of progress. There will be short term losers.

As with carmakers, self-interest is the root cause of fear people have with automation. And there’s nothing wrong with that. Few people care about technological progress if it comes at the expense of their job.

But history proves that industries are always rising and falling. In the future, there’ll be new trades that we can’t even conceive of today.

Australia is a relatively new player in the field of automated advice. But it’s a mature industry in the US, managing some $28 billion in assets. Australia’s industry is a fraction of that. But it shows the potential of what can be done here. Stockspot, an online robo-advisory, is the only company offering this kind of service.

What’s interesting about OA is that it represents another step in the process towards automation of ideas.

For decades, robots helped labour intensive industries cut costs and increase productivity. But we’ve seen the progress of AI towards more creative based roles. Even if this creativity itself is bound by parameters.

If robots are half as useful as they are in manufacturing, the upside is incredible. Imagine what it might mean for you. When you seek advice from everyday advisors, you run into bias. Everyone has their own personal prejudice and emotional tendencies. Bound by agendas and conflicts of interest.

Robots are programmed to sift through reams of information, doling out neutral advice. They don’t think or act emotionally. There’s no conflict of interest. It’s about using your inputs to find the best possible investment opportunities. There’s a lot to like about that.

How will OA work? Initially, it’ll advise retail investors and people with self-managed super funds. From the Australian Financial Review:

‘[OwnersAdvisory] will provide detailed recommendations matched to customers investment priorities. [It will allow] customers to buy investment advice covering asset classes including shares, exchange traded funds, and managed funds from around the world.

Macquarie wealth Management chief investment officer John O’Connell said the advice would draw on a database of 30,000 investment options globally.

After gauging customers’ risk profile through an online questionnaire, Mr O’Connell said the program would produce “a written outline of exactly what we would do if we were in your shoes.

That will tell you what actual things to buy, what things to sell, your portfolio tilts and where we think they should be given our views on the outlook for markets, and for economies.

Macquarie is targeting the 80% of adults who currently receive no investment advice. There’s a big opportunity for banks if they can tap into this latent market.

The advice will be cheaper than you’d find elsewhere. And you won’t have to deal with regular people…much like how many of us prefer self-checkouts at supermarkets.

Macquarie is making OA available to any customers. It won’t matter what bank you’re with.

The pitfalls of robot advice

As with any new service, it pays to know what you’re getting into. While the potential for robo-advice is massive, it’s still a program in its infancy.

Three things you should take into account before jumping head first:

  1. Know that you’re dealing with a machine. That sounds obvious, but it’s worth repeating. Robots can make assumptions that are flat out wrong. Or, at least, not relevant to your own situation. For example, it might make generalisations about the economy. Because of this, it may fail to account for potential changes in the market.
  2. Remember that you’re dealing with a limited service. What questions it asks, and how it frames them, is important. It could ask questions that fit you into a set of predetermined options. One danger is that OA prioritises Macquarie products over competitors. Macquarie stresses that won’t happen. But any business owning a platform tends to favour its products in the long run.
  3. Keep in mind that robo-advisors won’t know you inside out. They won’t take all your personal details into account when assessing investment options. Macquarie acknowledges that will be the case. OA won’t take account of your age, tax situation, or debt.

Needless to say, these things matter for sound investing. The priorities of a 20 year old are far different to someone entering retirement. As a result, you might find these limitations off-putting. But in the long run, as robo-advice matures, there is scope for real value. Especially once the industry is capable of tailoring personal advice to you.

When we reach that point, the broad appeal of robo-advice should take off.  It won’t be long before every bank offers their own Mr Robot.

Mat Spasic,

Contributor, Markets and Money

PS: Robo-advice is also poised to revolutionise superannuation. That can’t come soon enough…

Fund managers manipulating your super are nothing new. They’re always figuring out new ways to take more and give less. But you don’t have to wait for robo-advice to arrive. You can take the reins yourself, right now.

How? By setting up a self-managed super fund.

In a new report, The Markets and Money’s Vern Gowdie takes you through the good and bad of SMSFs. He’ll introduce you to everything you need to know to get started today. You’ll learn about everything from tax benefits, right through to management fees. Vern also shows you which investments are worth your time…and which aren’t.

To find out how to download Vern’s free report ‘How To Know if a Self-Managed Super Fund is Right For You’, click here.

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors.

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