$3.15 billion compensation paid for poor (or no) advice

Over 1.2 million advice customers have now been compensated.  Hopefully it draws a curtain on a sorry chapter in the advice business.

I still regard quality financial advice as a worthwhile service. And thanks to the Royal Commission, people can now see clearly what they are paying for advice, instead of costs being hidden behind a variety of fees and commissions.

Even so, ASIC research shows around one in three Australians believe financial advice is too expensive. But if you want an adviser to sit down with you, understand your needs and goals, and design a personalised plan, you should expect to pay for it. It’s entirely fair that skilled advice professionals are paid for their time in just the same way accountants and lawyers are.

The thing is, plenty of people don’t need bespoke advice. There is no shortage of free online tools and apps that can help you work out your goals, or let you get organised with budgeting and saving.

It’s when people have these aspects of their money sorted, and have a bit set aside to invest, that some sort of advice can be helpful. This is where robo advice is so accessible.  

Artificial intelligence – robo advice if you will, can help the vast majority of Australians with the investment process, and it does so at incredibly low cost. That matters because costs eat into the value of your investments.

There’s no mystery to how robo advice works. It uses technology to help you select a portfolio, then automatically rebalances the investments over time, so they continue to meet your goals and views around risk.

What makes robo advice so attractive is the wafer thin fees. A report by Rainmaker found that on a  $10,000 investment, you’re looking at average fees of just 0.3% annually. Add in costs associated with the underlying investments, and you could pay total fees of 0.5% yearly.  That’s just $50 annually on a $10,000 portfolio.

One area where robo advice is an absolute  game-changer is self-managed super funds (SMSFs). The name ‘self-managed’ says it all. Yet I still come across people who pay a financial adviser to manage their SMSF. If you’re going to outsource to that extent, you might as well have your super in a low cost industry fund.

Robo advice lets you invest your SMSF easily, with no hassle, and plenty of reporting on how your investments are performing. 

I admit that as Chair of InvestSMART I’m biased around robo advice. But already, one in ten Australians use robo advice because it’s so affordable. And I’m convinced it really is the way of the future that will help the vast majority of Australians benefit from incredibly cost effective investing.

Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.