How Do They Afford That?There are a number of ways to get financial advice, from free general advice from your super fund, to a fully customised strategy from a licenced financial planner. But sitting in between those two is roboadvice. Join Canna Campbell - a financial planner for 20 years - and Fear & Greed's Michael Thompson as they look at how roboadvisors work, the benefits, the limitations, and of course, the cost.
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The information in this podcast is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant Product Disclosure Statement or other offer document prior to acquiring any financial product.
Canna Campbell is a Corporate Authorised Representative and Corporate Credit Representative of Wealthstream Financial Group Pty Ltd ABN 35 152 803 113 Australian Financial Services Licensee AFSL 412079.
Welcome to How Do They Afford That? The podcast that peaks into the financial lives of everyday Australians. I'm Michael Thompson. I'm a writer and the co host of the podcast Fear and Greed business news as always, I'm with Canna Campbell, financial planner and founder of Sugar Mama TV, the financial literacy platform that is on YouTube, Instagram, threads, TikTok, podcasts, books everywhere. Really, Hello, Canna, Hello, how are you? I'm good? Thank you. This podcast we talk a lot about financial advice, about getting financial advice. Funnily enough, we are very very very strong advocates for everybody getting financial advice, and we talk about the fact that there are a number of kind of tears of advice available, from kind of free general advice maybe through your kind of super fund for instance, to a tailored plan, a very specific tailored plan with a financial advisor. But there is one that kind of sits kind of in between almost and it's called robo advice, which conjures up all kinds of images, doesn't it of a robot and like old school kind of robot, like maybe Bender from Futurama. Do you remember him?
No?
Yes?
I do. Yeah, yeah, I was really having to go back far in the memory bank, but yes, I do. Yes.
So I picture when we're talking about robo advice, that I'm picturing that that advice is coming from an actual robot. It is not, but it is something that we get asked about quite a lot, and we recently had an email from a listener, Sally, who asked how you go about finding a good robo advisor? So today it is robo advice one oh one with Canna Campbell.
Let's yay, it's a It is one of those topics that I understand the principles behind it, but I just I don't understand a few elements of kind of how do you make it work for you, how do you find a good advisor, and kind of where it fits into the grand scheme of financial advice and who it's kind of suited to.
I've just given you a bit of a preview as to all the questions I'm going to ask you over the next few minutes. But let's start with the very very basics. What is robo advice and how I suppose does it kind of differ from your traditional, tailored, in person human financial advice.
So robo advice is automated financial advice. It's normally delivered online, and it's done via like algorithms and AI technology. Okay, and it is there's no real human touch to it whatsoever. So we'll go provide you with some recommendation based on the information that you plug into it, and then it spits out the financial strategy and even product selection investment selection for you.
Okay, So you are still providing a lot of information. You would still be kind of providing what your goals are, what your current situation is, probably your risk appetite, and various so a lot of similar questions to what you would be answering with a human advisor exactly.
So there's some question like a questionnaire that's obviously online. You enter all information and then it will then look at all your goals and the deadlines for those goals, and then work out a strategy for you that's legal and appropriate for what you're trying to achieve.
And explain why benefit most from this is it someone who perhaps doesn't have the money saved up ready to go and spend. I know we've talked in the past about a human financial planner. I really feel old kind of having to specify robots and humans. But a customized, tailored financial plan which might cost somewhere between five and a half thousand dollars up to kind of twenty thousand dollars. Is this kind of predominantly a budget thing.
Look, I would say there's a couple of different categories that people would fit into that are appropriate for roboadvice. The first being beginner investors.
Oh yeah, yeah, so people who've.
Got say five thousand dollars, they really want to invest, They're feeling a little bit overwhelmed. They don't want to go and spend a large amount of money on a financial plan. Yet this is something that could be really good for them because obviously it's fairly cost effective, it can be delivered very quickly, and it can get the ball running so you don't waste any more time saving and thinking about what to invest in. So it can really sort of accelerate your financial planning journey. The other category I would say is for anyone that is feeling overwhelmed with personal finances, isn't quite yet ready for a financial plan erh and a complicated financial strategy. This is something that's a good way to sort of lean in an easier way into that journey. Then, I would say for people the third category is for someone who's got a fairly simple situation and a very simple financial goal that they want to achieve. So they just want to maybe fix this super okay, and this is something that they are comfortable doing because they just want this addressed to help suit them for the next couple of years or so.
Okay, So you can actually just be really specific and really targeted with what you're looking for, which is also something that you can do with a human advisor as well. Isn't it that you can just go, look, I really want to focus only on my superannuation, or I really want to just focus on this particular area of estate planning at those kinds of things, okay. Is the main advantage then of using a robo advisor? Is it cost? Is that the number? Also? I suppose speed, because we've talked in the past as well about the fact that a human advisor is going to take time to put your plan together, and that's what you want because it shows that they are doing a lot of research and a lot of work and putting it all together, whereas a robo adviser would be able to turn something out pretty quickly, you would think, yeah, definitely.
So obviously it's very cost effective, it's fast, but also it's very convenient as well because quite often with robo advice, the whole process is very seamless, and the once you've decided you want to implement a lot of those forms so prepopulated and it's just a matter of it. They can select all the investments for you. So there's definitely an element of efficiency there. And then I'd say accessibility. You know, you don't need to have a large amount of money to go and engage with a robo advisor platform, So that really does lower that barrier to entering in us, I said, it means you're not wasting time, you can actually start. You know a lot of people think they have to save up a huge amount of money before they can see a financial planner. This stops that from happening. You can literally with five hundred dollars go use a robo advice platform.
Okay, the downsides, I imagine one of the big downsides is a lack of human touch on this. And you talked actually before when you mentioned that beginner investors or someone who's not quite ready for all the kind of detail this might be suited to them, but they will also miss out on someone kind of holding their hand through it.
Yeah, and look, you know, as a financial planer, one of the things I would do to help clients is stop them making a really bad decision, you know, because they pick me up and think, oh, I've just heard about this hot share tip. What do you think? And you know they're about to spend twenty thousand dollars investing in This's not I'd say, hold your horses, hang on, let me go to some research for you, and I'd stop them from making a disastrous decision. Robo advice won't do that, you know, so obviously that complete lack of personalization. You know, and money is a highly emotional subject, you know, whether you've got lots of money or no money, it is very very personal. So robo advisors use algorithms and AI and they recommend these portfolios and these strategies. But I've said this in the past, you could there are lots of ways to skin a cat. I don't own a cat. I'm not a cat person, I will admit, but you can you know, we will.
When I was, I have the benefit of people worrying that you were legitimately talking about skinning cat case. Yes, I know. I don't think you've cleared that up by clarifying that you don't own a cat. I think what you've meant to say was I wouldn't advocate skinning cats, not I don't own ones, so I'm not going to skin my own. Ye.
Sorry, So, as I was saying, you know, when you're sitting down with a client and you've gone through all the information and you know there will be say four or five different options. Now, the number one best strategy for them may actually not work for their value system or where they sit with their mindset or what they may not be ready for that strategy. Yet, there are some other ones that are a bit more gentle and easy and a bit more simplistic to follow for the timing, and we can part that number one idea, you know, whether they can inform consent, you know, for further down the track. Robo advice won't necessarily see that, or understand that, or give that as an option. And this is the problem when your situation is a bit more complicated and there are so many different options available, you know, I would sometimes end up having to sit with a client and we'd implement the third best strategy because it just wasn't the other two just weren't appropriate yet.
Okay, And so it's not necessarily taking in the bigger picture and not just talking about now, but perhaps not looking far enough ahead into the future as to what the evolving kind of requirements of this person or this family might be.
Exactly okay, and you know it's they've good all sundstand what that person is dealing with right now. You know, it might have For example, someone may have inherited some money and they you know, ais and this robo advice is saying, right, you've got to invest in this share pot follow but that person may not be ready yet to do that. The second concern I have with robo advice, and I'd be intrigued to hear if people can relate to this, how many people who are using robo advice genuinely understand the advice they've been given. Because it's a financial planner has to triple check that the client understands absolutely everything that you're doing with their money.
Okay.
They have to understand the risks, the costs, and of course the benefits of that advice. With robo advice, you don't have that thorough cross checking examination. How many people are ticking boxes and signing electronic forms not knowing one hundred percent really what they're doing and the risks involved as well as even the benefits. Okay, that's where I am a little bit more concerned, and.
That would be a big concern where the suggestions made by an advisor, whether a human or a robot, is a more complex one, but probably less of a concern when you're dealing with very simple options, simple and straightforward, because it is more likely that the recipient of that advice is going to understand it because there aren't is men any kind of variations to it and fill on pieces. Yeah, okay, how does it actually work? How does it? I don't even know whether you'll know the answer to this, because it feels like asking kind of how does the algorithm work on say Instagram or TikTok, which kind of no one really knows, But how behind the scenes, how does a robo advisor actually work? Are they drawing off, say, for instance, a limited pool of potential outcomes and applying the information that's put into it by the client through the questionnaire through the questionnais and then going okay, well, here are the kind of twenty or thirty different possible outcomes. I'm going to pick the one that's most suited to you, is it that simple?
Look, there's lots of different robo advisors out there, and at the end of the day, there any as good as the person who built them in the first place.
Okay.
So it's a combination of those things. Looking at the goals, looking at the deadlines for those goals, looking at the risk profile, looking at the situation, the age, you know, the level of existing financial responsibilities, children and so forth. And then obviously it's you know, once you've put the more information you can put into it, the better, just like it would be the more information you can share with the financial planner. And then it will obviously then not just pick the strategy, but it also pick the underlying investments as well. And most often with these robo or advice platforms, it's really the ETF, so the sort of underlying investment product, okay, rather than that you know, a particular share portfolio as such.
Okay, So looking more at these broader kind of exchange traded funds that track a certain portion of the market rather than getting really kind of specific and going this particular kind of company for instance.
Yeah, and they will often do the ongoing portfolio maintenance. Again, this is probably another concern I have because it's called a sort of harvesting, but they are triggering if it's something like an ETF, they could be potentially rebalancing the portfolio without an understanding of the client's tax situation, which can be very unique and vary from financial year to financial year. Okay, so that's another issue I have. But that then also can be mitigated with things like being able to pick the individual stocks or using something like a listed investment company where you don't have that churning of the portfolio.
Okay, one more question then we'll take a quick break. How personalized can robo advice be? I'm assuming that again it comes down to probably how much you're paying for it, and how detailed the actual platform itself is, and how much information you put into it that you would get varying levels of personalization of.
Your outcome at the end of the day, don't. I haven't seen enough from robo advice to see it match the depth of financial planning and personal financial planning. Human, financial planning human you know, it doesn't factor in things like you know, planning for a family, changes in your health, or changes in the health of a relationship, estate planning, or those very unique important tax strategies that proactive advice is needed.
Okay, we're going to take a quick break. When we come back, I want to talk to you about what we should be looking for when we are choosing a robo advisor and how do you actually find the right one for you, and really as well, how to make sure that they are legitimate and reputable kind of robots behind the scenes pulling all the levers. We'll be back in a second. Cano we're talking about robo advice today, and we've covered a lot of the pros and cons of robo advice. We've covered what robo advice actually is, what should someone look for when they are choosing a robo advisor, And this kind of gets back to the initial question from Sally that sparked this episode, kind of when she wrote to us and said, Hey, how do I actually find a good robo advisor? Are there any good ones out there? And if I can ask you a supplementary question, do they need to be licensed as their kind of.
Restrictions most definitely.
Okay, maybe I was going to qualif by that question I wasn't. Actually I just but if I are, they do they come in under the licenses of kind of bigger organizations. Are they typically advice sections set up within kind of super funds or those kinds of things, and therefore covered under their licenses? Take it away.
Look, robo advice is covered under obviously it has to be licensed. If it doesn't. If it's not licensed, don't touch it. Just like you wouldn't see someone for financial advice that wasn't a.
Licensed How do you check to see if they're last check.
On the ACIC website?
Okay, okay, in exactly the same way as we've as you search for financial advisors. Exactly, gotcha.
So above that, you then obviously want to make sure that the robo advice platform you use is easy to use, you know, it's intuitive, because otherwise that's going to do your head in. Also, a wide range of investments, this is a big one, and this would be a non negotiable for me. So if I'm only going to be given five different investment portfolios to choose, from being a generic growth high growth balanced conservative cash. That does not excite me at all because that means the advice is going to be very bland and simplistic. Obviously, look at the fees, not just the fees to get the initial advice, but the ongoing fees. Okay, then I would look at something that can help keep you going. Obviously it's great to get advice and implement it, but it also needs to be reviewed. Just like a financial plan, it needs to be reviewed I would say at least every year, if not every six months, so that you are progressing. You even just tick that box by getting that ten thousand dollars invested or twenty thousand dollars invested, you're actually contributing to that plan and looking, okay, we've got another five thousand, what do we do in next So something that's going to evolve with you. And then of course having a human behind the computer, you know, be able to call up and say, hey, I just want to check this the advice is saying this. Is it possible to organize a call with someone so I can just ensure that I understand this or hang on, this doesn't make sense, or that this looks incorrect. You know, having that contact can.
I ask you about that? Are there these hybrid options out there where it is kind of robo advice with the human touch.
Yes, but you may have to obviously pay additional fees. That fee may be really worthwhile investing in, because if there is a period of time where the markets are very volatile and you're seeing the value of your investments fluctuate and it's making you feel uneasy, the value of avingble to speak to a human being it can be well worth it.
How much are we talking with these and we've talked before about the human financial advisor ranging from kind of five and a half thousand up to twenty thousand or more. How does that compare?
Well, you can get it as little as a couple of hundred dollars.
Okay, that sounds perfect.
You can get it.
Excuse me, I know this.
Is how we talked about the other day, you becoming me and me becoming you. I'm getting your gut of mind.
I know you are feeling this podcast with smart I know I'll try to keep this highbrow. We're talking about robots here, not filth.
Well, the cost is obviously going to depend on how much you want, like what sort of area you want to cover if it's something very simple and straightforward. You know, it really can be as little as a couple of one hundred dollars. But you know, as I said, robo advice is still a long way to go. It is very advanced, it's very exciting, it makes it accessible. I see a lot of ups positive things about this, but you know, know that it's not necessarily the thing that you're going to rely on all the way.
Okay, I don't know whether you're going to be able to answer this one, but what about risk? What about kind of so the market there's a downturn, right and you can pick up the phone to a human advisor and say, look, the market's just fallen kind of three percent or four percent in a day, and everyone is panicking and everyone thinks it's a disaster. And the human advisor on the other end of the phone is going to be able to talk you calmly kind of through it, saying, typically, don't worry you. Remember we're playing a long game here. How does a robo advisor managed risk, say, for instance, in a market downtown.
Well, they you'd be part of a newsletter. So you receive a newsletter with some educated documents, you know, even some reports from economists like Shane Oliver from AMP explaining what's going on in the market, and other obviously financial experts that would help educate you to help coming on it. So it's not like they don't there's no one answering the phone if you did tri and call. Yes, robo advice understands the responsibilities of educating clients, making sure that they are informed, they're not making knee jerk reactions that may come with financial regret. They understand what's going on the market, and also they can have access to people who are giving advice from a general point of view as to what to do in market conditions like this.
Okay, how then this is the last question that I'm going to ask you, and it is probably the hardest one to answer. How do I find the right robo advisor? Is it a case of because there are so many options out there, and there are so many and it is not like this situation when you can just pick up the phone and have an initial meeting or a chat. And as you've always encouraged me and everybody listening to this, you should interview multiple financial planners before you kind of settle on the right one. How do you do that with a robot?
So you need to go through things like comparison websites, go into reviews, if you can go into any forums where people have used certain different robot advice platforms, asked them their experiences. Also, you know, I spoke about fees and how cost effective this can be. Also find out what the ongoing fees are and also are they competitive as well, because you know, people don't realize you've got to pay for that ongoing service and sometimes you can opt out of that ongoing service. Is that something that's available. The other things I'd be looking for are does the robo advisor provide advice in areas that you need? For example, you actually may need a fairly comprehensive superannuation strategy that included, you know, sartary sacrificing and bringing forward caps and contributions. Find out whether they actually will cover your needs. So that may mean it costs a little bit more, but if it means you're getting that comprehensive advice rather than that kind of generic, one size fits all, which is not great, that's where you need to sort of start thinking about. And I ask around just like you would with the financial plot.
Yeah, good, word of mouth is important and in comparison websites, that's an interesting one. What about as well, though, other organizations and companies that you trust that are in the financial services space and going and seeing whether they have a robo advice component. So say, for instance, you're super Fund, Yes, as an example, and we've talked a lot about super Fund and the superannuation advice that is available through them, and say you trust kind of that for instance, and you know the organization kind of behind it. Is that something that you can investigate as well, going okay, they've got the systems and everything set up, they also have a robo advice component. I will investigate that one.
Yes, And the key word there is investigate. So I've said this again and so I've said this before and I'll say it again. When it comes to trying to find the right financial planner, I recommend people go and speak to at least four or five different financial planners. It's the same with robo advice. Look at at least four or five different robo advisor platforms to see which one is right for you. Don't just go, oh well, I'll just go with my super one that's that there could be something actually even better and better value than your superannuation one. Don't just go with the easy, lazy option.
Okay, there's a lot in this. There is a lot there. It's an important topic though, because it is it does kind of fill a gap within the industry, particularly for people who might have very simple needs or who have a limit on what they're able to spend on financial advice. So it's a good topic to be talking about. We've talked about kind of who it is suited, and it is suited to those kinds of people. And really the benefits are that that the cost effective nature of it, the fact that it is it is fast, it is efficient, it is accessible. But there are those downsides of the lack of kind of flexibility and personalization of the advice, and that it doesn't necessarily take into account the whole picture and those things that really a computer a digital kind of assessment obvious situation might not notice, but a human having the same conversation with you might notice a changing priority coming for you ten years down the track and can factor that in. But when you are looking for a robo advisor that you are making sure that it is a part of a licensed organization at check Reviews, check comparison websites. Make sure as well that the fees aren't disclosed, and that you're able to see how much it's going to cost works for you, and that they can specialize in the area that you need advice in as well. There's no point going to a robo advisor with very specific kind of requirements and only to find out that they don't actually cover that in the way that you need it to. Wow, we've covered some stuff and you even talked about skinning cats and sex robots.
I did, I went there.
Yeah, do you have any regrets? Go say no, say no, own no, commit You have committed to it entirely, Cana. If we want any more information on any of these things, perhaps except for those last two elements, where do we find you?
The best place to get in contact with me is on Instagram at Sugar Mama TV or Canna Campbell.
Official and you can hear me every day with Sean Aylmer on Fear and Greed daily business news for people who make their own decisions. Thank you for listening to How do they afford that? Remember to hit follow on the podcast and the best thing that you can do is tell somebody else send them this episode if they might be interested in hearing about robo advice. Spread the word about how do they afford that. Thank you very much for your company. Join us again next week
