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Will a ‘robo adviser’ be your next financial adviser?


Will a ‘robo adviser’ be your next financial adviser?

Artificial intelligence is disrupting industries as diverse as manufacturing, healthcare and journalism. So it is not surprising that financial advice which was typically delivered through a financial adviser is being disrupted.

According to ASIC’s website, robo advice refers to financial advice that’s delivered by a computer instead of a human financial adviser. You enter personal details, such as age, gender, income, assets, financial goals and risk tolerance, into a computer program and it generates financial advice based on the details you entered.

While the recommendations from different robo advisers may differ, they all employ algorithms in the background to try and optimise the advice depending on the inputs. Many providers also look to integrate portfolio management into their offering. Some use index funds or they may use active management, but most try and create a portfolio with the “right” mix of assets to cater for the investor’s situation. It’s common for these algorithms to be based around the CAPM philosophy which is useful but very backward looking.

From my observations, digitally enabled propositions (robo advice) are very good at delivering part or all of simpler processes, such as advice within a pension scheme or to customers with simpler needs around saving, investing and protection.

However, limitations seem to occur when more complexity comes into the picture such as needing to decide between an option to contribute to one’s super fund, pay down undeductable mortgage debt, pre-pay school fees or make an investment in a fund. There are also limitations on what digital advice software can do. For example, a computer will not clarify your goals and objectives, nor will it correct any details you enter. It cannot account for changes in your circumstances if you have a break from work, increase your debt levels or lose income due to sickness or injury.

So will robo-advisers replace real financial advisers? The answer is, probably not – at least in the short term. The more likely scenario is that robo-advisers will complement the work done by real financial advisers. They definitely have a role to play in the low cost, simple needs advice market for consumers who do not want to engage in a full service advice relationship with a person, but as technology advances it’s quite likely that robo advice will play an increasing role.


Scott joined Montgomery Investment Management in 2013. Scott joined the firm from BlackRock Investment Management, where he was Managing Director, Head of Retail Australia for 12 years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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