Talking about broader digital financial advice, or digital capabilities, in Australia, pension funds have had calculators with various amounts of personalization for a long time, where clients can get on a website, look at what their balance is now, and see how it changes in the future. There are also a few levers that they can move to try different things.
“We’ve had tools like risk profile quizzes and calculators on pension fund websites for some time.”
For over a decade, such quizzes were typically paper-based; now we are seeing increased use of digital technology to increase the ability to personalize and engage.
In Australia, several robo-advisers—from acquisition through to investment—have developed very similar models to those of Betterment and Wealthfront, adopting a full-service approach. Other firms are more focused on risk profiling and algorithms to give recommendations, but do not necessarily run right through to investing. Still others are more focused on older demographics: talking people through the transition into retirement, where it’s much more complicated.
We’re also seeing a similar trend to the rest of the world, where it’s more of an argumentation of conventional advice and where stand-alone robos are struggling to get customers; thus, mergers between robo and human advice are developing rapidly. Most wealth-management businesses and pension funds are looking at either developing their own solution or partnering with startups. Some have done so successfully, while others continue to struggle.
One of the interesting differences in Australia is that it has compulsory pensions, meaning that there’s less discretionary money to invest. It is compulsory that all employees save 9.5% of their salary towards retirement.
The market that a traditional robo-advisor is after, which is discretionary investments, is small in Australia compared to other parts of the world, since there’s so much money going into the pension system. A number of Australian robos are focusing on that, helping young people get into investing or saving for a mortgage, and thereby offering financial advice at a fraction of the cost.
On the other side, we’re seeing pension funds looking at developing their own digital advice capabilities. Again, that trend has been going on for about six years—the difference is that now we’re calling it robo-advice, rather than just online advice.
Beyond that, several startups are focusing only on education and guidance aimed at helping younger people getting into investing, children learn about investing, or parents teaching their children about budgeting. Several larger players are looking at adopting some of those approaches.
One interesting example is Acorns, which enables micro investing. Large pension funds either partner with Acorns or develop their own incremental savings, where that incremental amount goes into the pension fund rather than an investment vehicle. Recently Acorns has announced it will launch its own pension fund.
But that’s not all. When it comes to innovation, we’re certainly seeing artificial intelligence (AI) and predictive analytics being used more and more. A lot of the more innovative companies, either at the FinTech or the company end, are trying to personalize as much as possible.