Filling the advice gap, with the human touch optional

There is no doubt that Australia has an advice gap, and it is arguably getting worse. Digital advice stands ready to fill a big part of the gap, and it can benefit advisers as much as investors.

The numbers change all the time, but there is no doubt that Australia has an advice gap; in fact, it is more like an advice chasm.

Since peaking at about 28,000 registered financial advisers at the start of 2019, a dramatic collapse has ensued, with adviser numbers falling below 16,000 before stabilising.

Simultaneously, the demand for advice from millions of Australians approaching retirement age continues to grow. There are already more than four million Australians over the Age Pension eligibility age of 67, and a further 5.3 million are over age 50 and planning to retire within two decades.

As this retirement wave crests, and the baby-boomer generation looks to pass on wealth, the need for guidance from the recipients is likely to balloon. And this is on top of the general ever-present need for help with the complexity of Australia’s investment, tax, superannuation and social security settings.

The advice gap is even bigger than it appears. While there are about 15,600 registered advisers, a significant chunk of that number would be registered advisers who are business development managers (BDMs) or analysts, who chose to do the financial adviser exam and keep their qualifications – but don’t actively practice.

And then there are the fees, which are another reason why people do not seek advice.  

“The median fee for a traditional financial plan is about $4,500, and even for a single-topic plan it is just over $2,000,” says George Haramis, co-founder and chief executive officer of fintech moneyGPS. “That’s the main reason why there is an advice gap. There are about 10.4 million working Australians who have unmet advice needs.”

All of these factors coalesce in a perfect storm for moneyGPS, a client-led digital financial advice platform. Haramis and his business partner Drew Fenton established moneyGPS in 2019, after they saw the need for affordable, accessible advice for the 80%–85% of Australians that can’t afford traditional comprehensive advice.

“We wanted to bring the best of digital innovation and financial services together to reach more everyday Australians looking to improve their financial wellness,” says Haramis. “Created by finance industry veterans, our platform combines cutting-edge technology with expert financial knowledge to provide affordable, 24/7 financial advice to all Australians.”

It’s not ‘robo-advice,’ though; it’s ‘digital advice.’

‘Robo-advice’ is automated financial advice using computer algorithms and technology to assess a person’s financial situation and goals, without the direct involvement of a human adviser. Robo-advice is designed to cut costs and make financial advice more accessible to the general public. However, because it is based on pre-defined models, calculators and investment-risk engines, robo-advice will be generalised, and is unlikely to fully account for complex individual circumstances – it will recommend only investment strategies or financial products.

But ‘digital advice’ can offer personalised advice, says Haramis. “The objective of digital advice is to mirror the advice process delivered by a human financial adviser and offer affordable personal advice,” he says.

While the digital advice process used varies between providers, Haramis says a typical advice journey might look like this:

• The client completes a digital ‘fact-find’ that reviews their situation to determine the most appropriate advice topics for their financial position, and which are also in their best interest.

• The Fintech’s algorithm and decision-making rules perform calculations and trade-offs to provide advice recommendations. As digital advice is a rules-driven industry, it is the algorithm and not AI that is used to determine the advice recommendations.

• The process should offer both strategy and product recommendations, across investment, superannuation, insurance, retirement if possible, as clients need a complete solution. This differs from ‘robo-advice’ offerings, which only cover investment advice.

• Integrations with external providers can be used to pre-populate parts of the fact-find and ensure that high-quality data is captured.

• As a result, the client can engage in a fully digital experience from start to finish, including implementation.

Additionally, he says, a critical aspect of digital advice is that some providers offer access to a human specialist – the ‘hybrid’ digital-human option – who helps the client along their advice journey, in areas such as starting a statement of advice (SOA), validating their responses to the fact-find, undertaking implementation of the advice recommendation, or simply answering questions.

“The hybrid option is becoming more important in offering an experience that delivers the best of the tech with a human element, which is a key differentiator in delivering digital advice globally,” Haramis says. “It has to be remembered that the great majority of users of digital advice come from a background of having minimal and simple advice needs, limited financial literacy, and a lack of familiarity with digital advice tools. They probably have never met a financial planner. All of which means their capability to truly self-serve is also questionable. The hybrid human-digital option offers the affordability benefits of digital, with the ‘safety-net’ of having human support and guidance.”

Crucially, while designed to widen the accessibility of financial advice in Australia, the offering is also designed to benefit advice firms. moneyGPS provides digital advice and guidance through its own AFSL, which means that firms can use its platform to offer compliant single-topic digital advice without needing to obtain their own AFSL, and can establish a ‘white-label’ branded digital advice platform.

“We help accountants, boutique AFSLs, and enterprises offer digitally-enabled financial advice to their clients with minimum effort, cost and risk,” says Haramis. “Advisers can scale their business with little effort or cost to service a market they cannot afford to reach now, giving them more time with existing clients. They can use this to reach and build relationships with specific client groups, for example non-advised people, groups with low balances, insurance-only clients, millennials. We call this helping advisers to more money – by ‘stealth’,” he says.