Robo-advice: The threat and the opportunity

Abe Goenka of Natixis Global Asset Management discusses the results of their survey on the financial industry's attitude to robo-advice.

Jess Morgan 9 October, 2015 | 5:00PM

 

 

47% of advisors believe robo-advice is a threat to the existing business model

Abe Goenka: Based on Natixis' survey results we found that financial advisors are very optimistic about the growth of their business. In Canada, they view it as growing at around 15% as compared to 12% globally. A large part of that growth is going to be driven by new clients and robo-advice is a threat to that growth and competition for those new clients.

46% of advisors believe robo-advice will have a lasting impact on the industry

Robo-advice is a potential disruptive technology. We've seen this technology impact other industries and advisors are concerned that automated solutions like this in technology will have a long-lasting impact on the financial services industry here in Canada as well.

74% of investors believe robo-advice is an opportunity for the industry to modernize

Our survey results show that advisors view robo-advice as a positive and as an opportunity and that's really because it's going to force traditional advisors to improve their service level. Advisors who are simply just providing automated solutions to their clients will be easily replaced. The traditional advisors who can show that value-add, show benefits to their clients and demonstrate value beyond portfolio construction and simple asset allocation have the opportunity to build their businesses. Traditional advisors are going to have to focus on personal advice where they can compete against these robo advisors. And then we've also seen that some advisors are actually thinking of having a robo-advice arm within their practice that can address some of the less affluent clients, have them join their firm and then over time as the wealth grows and their requirements become more sophisticated, their portfolios become more sophisticated, then they can transition those clients into a full service model.

78% of advisors believe face-to-face advice is preferable during bear markets

We found that advisors think the top two mistakes that investors make are being emotional about their investment decision-making and focusing on the short term. And when you have an automated solution like robo-advice, it's very difficult for someone to get involved and help guide that investor because the investors are going to get emotional in a bear market. They are going to get emotional when volatility increases like we've seen over the past six months to a year. And that's where a good financial advisor can help the investor keep focused on their long-term goals and help them build a portfolio that manages that bear market and reduces the risks and stays invested over long-term because that's ultimately what's going to drive wealth creation for Canadians.

76% of advisors believe firms with younger clients will grow faster than other firms

Robo-advice is really a technology solution. What we typically see is a really sleek website and mobile app and we find that that's a type of solution that really appeals the millennials. More and more millennials don't want that human interaction now. That's typical of traditional financial advice. They really want to be able to do their financial advice anywhere and at any time. Millennials also are less affluent and have less sophisticated investment portfolios, but that's going to change over time and it's a bit of a question to see how robo-advice will be able to adapt to the changing needs of millennials.

About Author

Jess Morgan

Jess Morgan  Jess Morgan is the associate editor of Morningstar Canada’s website. She began her career as a television producer and freelance writer, often making appearances on TV and radio as a commentator on politics and culture. She holds a BA in communications from the University of Winnipeg and a diploma in Creative Communications from Red River College.