Robo-advice could hurt average consumers, firm says

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A wealth advisory firm has warned consumers to be wary of accepting automated advice and services.

With Yellow Brick Road touting to launch of its robo-advice platform, Guru, William Buck wealth advisory director Adrian Frinsdorf has warned that automated advice is not a one-size-fits-all proposition. Frinsdorf said robo-advice platforms could be useful tools for financial advisers or savvy investors, but that most consumers should be wary of the platforms.

“We’re all aware of digital disruption, and in most cases it’s a good thing. CommSec, for example, has revolutionised pricing mechanisms for share trading. But I think consumers should be cautious when digital products are claiming to offer impartial consultation in the financial sector – particularly when owned and implemented by product providers," Frinsdorf said.

Frinsdorf said the kind of consumers looking to use robo-advice tools may be those who can least afford negative outcomes.

“When it comes to finances, the consumers who are looking for cheap outcomes are usually those who can’t afford for things to go wrong – so unless you’re a sophisticated investor, my advice would be to steer-clear of automated services,” he said.

Frinsdorf said consumers could often underestimate their level of risk.

“Most of us are naturally biased towards our own spending behaviours, so its common to under-estimate risk – the GFC is the perfect example of this. Robo-advice could be a great entry-level tool. But as a direct-to-consumer product I’m concerned that it will be targeting our most vulnerable investors and not take into account information that could be revealed in a personal interview situation.”

He also expressed concern that robo-advice could moove into more complex areas of financial management.

“My concern is that when automated advice moves into superannuation strategy and estate planning the consumer is not getting the holistic and consultative financial advice they need," he said. “This is great for seasoned investors but I would warn consumers to use it with caution, and to learn about the difference between experienced personal financial advice and a financial advice product.”