Robo Advice - What's it all about?

I suspect when some Kiwis hear this term they might visualise a meeting with C-3PO across a desk as he hands out a hi-tech financial plan. Well perhaps for those of my generation.

Of course this isn’t the case. More appropriately explained as digital advice, it is just another tool to help those who might prefer using technology to help them on their merry financial way.

I was part of the government steering group that looked at the way financial advice should be delivered to New Zealanders and one of the components was considering whether to allow this form of advice to be delivered here.

In fact, as the new advice legislation finally reaches royal assent to enable its implementation, the government is already allowing the introduction of some technology, as an exemption, so new platforms can be developed. This is a very good thing from my perspective. Anything that allows Kiwis to plan ahead and improve their overall financial wellbeing has to be a step forward.

So how do these platforms work?  In most cases you will access them either via the web or an app.  They will generally have a series of steps for you to complete. In most cases they will want to find out what type of risk tolerance you have to your investments going up and down in value.  They should also seek to get some personal insights into what you are seeking by way of goals, what your current financial circumstances are and what type of income you will want when you decide to hang up your working boots.

It then takes all that information and works out what type of investor you are and what types of funds are best suited to achieve your long-term goals. If you are lucky it should give you the opportunity to get a plan that will help you along the way and check that you are on track.

All sounds pretty interesting and easy doesn’t it?  There are four current offers available that you can start using right now. Check out the FMA website to get a handle on what’s on offer.

That said, digital advice is not the silver bullet to financial freedom. At best it’s just one of the many levers that you can access to get in the best possible financial shape. So it’s with a little caution, before you jump into these new waves of technology, that you might consider applying the following points: 

• The output is only as good as the information you put in. So be as honest as you can when completing the information that is requested.
• You will need to know a little about all the jargon we use in financial services. Hopefully most will have information and education elements. If you are not sure about a particular term then go to www.sorted.co.nz to find out what the word means. It’s an awesome site to demystify terms in nice simple plain English.  Best of all, it’s totally independent and only sells financial goodness.
• Before signing up find out what the costs are.  This should be very clear and if it looks complicated or not easy to find out then don’t use it.
• Hopefully it will also offer access to a qualified financial adviser, if not face-to-face then by phone, at a minimum, should be available
• If there’s no charge, be very mindful that free isn’t always the best. Find out exactly what products they are going to offer you. They must disclose any conflicts of interest. In most cases the ones I have looked at will only be providing their own products. Now there is nothing wrong with this, but you may not be getting the best solutions offered elsewhere. As new providers come onboard I suspect you will have greater access to ‘best of breed’ products

Follow these simple points and you just might find yourself better off than where you were before.

Personally I think, like many things, you get what you pay for and when it’s dealing with your hard-earned savings it’s terribly important you are getting the right advice for your own personal circumstances.

The good news is that, as the new advice legislation comes into play, more financial advisers will be able to offer advice more easily than they were able to before. There is nothing better than sitting down with a qualified expert to work out what’s right for you, and many of the principles above should apply when you speak to someone face-to-face as well. However, expect to pay a fee for time, just like you would with an accountant or lawyer.

I was recently on the AM Show and this short interview gives you an insight  into what it’s all about, which you can check out here: https://www.newshub.co.nz/home/money/2019/03/do-you-trust-a-computer-giving-you-financial-advice.html

So, overall, having more choice to get the right level of advice for you that meets the current legislation requirements is a great thing. Digital advice has been around overseas now for some years and, while in its infancy here in New Zealand, I expect the capability and technological improvements will improve substantially. With Open Banking just around the corner it opens up a new world, but that is a whole other article to talk about.

Who knows, one day you might be visited by a robot to help you financially; in the meantime I would just like to have one doing my housework and grocery shopping.

David Boyle, Head of Sales & Marketing