Robo advice: changing how we plan for retirement
Robo advice: changing how we plan for retirement
Robo advice is much more than just an alternative to phone or digital advice. Super fund leaders should recognise its potential to deliver scalable, consistent and conflict-free decision support, improving financial literacy and education, driving positive member engagement, outcomes and growth.
At Sargon, we believe the superannuation sector is ripe for change. Although digital innovation has already disrupted many aspects of our economy, superannuation has been late to the game. Consumer-facing companies that must work hard to deliver a customer experience to attract business and retain loyalty have been leading the way. Think, supermarkets, phone companies and other businesses where the customer can easily switch providers.
Superannuation, by contrast, is an industry with a much longer customer feedback loop. Investment returns are measured over extended time periods, and product information can be complex – making it less accessible and digestible to customers. These factors act as a barrier to a member switching funds, even if they could receive better value elsewhere. As such, super funds haven’t really had to focus on customer engagement and experience.
But this is starting to change.
Economical, accessible advice
By providing economical and easy-to-access information, robo advice can play a key role in helping funds drive engagement among members.
The financial regulator ASIC certainly agrees. In its guide on robo advice – known as RG 255 – ASIC writes: “In an environment where only around 20% of adult Australians seek personal advice, we think that digital advice has the potential to be a convenient and low-cost option for retail clients who may not otherwise seek advice.”
As ASIC implies, members considering taking financial advice face two key barriers: cost and convenience. By being available anywhere at any time, the unquestionable convenience of robo advice helps overcome the initial inertia of many customers. What’s more, customers’ familiarity with now seemingly ubiquitous digital assistants and chat-bots makes engaging with digital advice more natural than it would have been only a couple of years ago.
The inherent scalability of robo advice means funds can offer the service at a fraction of the conventional price point, delivering easily accessible advice to members who previously regarded financial advice as cost prohibitive. At the same time, funds benefit from large operational cost savings and productivity improvements, which we estimate at up to 80 times more efficient.
Consider this example – on Sargon Decimal’s busiest day in 2017-18, some 175 new members engaged with the platform, with 64 of them going on to get statements of advice. Based on our experience of operating a financial planning practice, conducting 175 initial client meetings, discussing the clients’ needs and scope of advice, and producing 64 advice documents would have taken around 35 workdays. It would have taken a further 27 days to compile the statement of advice and 17 days to present the results to members and implement the advice. That’s a total of 79 workdays – or almost four months.
"Most of us spend our working lives contributing a large part of our incomes to a fund that will become the largest asset many of us have, yet we don’t understand even the most basic details."
Driving deep member engagement and financial literacy – among all generations
By providing a value-add service to their membership, robo advice can also help funds boost the quality and depth of engagement.
Many members’ questions can be answered with a simple self-service online questionnaire. Funds can collect more data around users’ preferences to complement the existing data they have about each member and input that into a robo advice model, implementing the advice to ensure members are leveraging the most suitable services for them.
Interestingly, when we introduced our Decimal robo advice platform, we suspected the take-up would be strongest from the millennial generation. But as last year’s Decimal Digital Advice Insights Report reveals, members of all ages are interested in seeking answers this way. Furthermore, for the fund member, robo advice plays a big role in financial literacy by helping them understand what their financial situation is and what that means for them now, and in the future.
Most of us spend our working lives contributing a large part of our incomes to a fund that will become the largest asset many of us have, yet we don’t understand even the most basic details. Robo advice makes understanding super far easier and more accessible, empowering members to more deeply engage with their fund and financial outcomes.
Driving compliance in a cost-effective way
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was a landmark moment for the industry, acting as a catalyst for reflection and change. Against a background of increasing regulatory complexity in general, many funds are taking a step back, looking at the industry and trying to find new ways to solve some of the problems the Royal Commission identified.
In addition to improving engagement and financial literacy among members, robo advice has a central role to play in compliance.
By translating “traditional” financial advice into a consistent set of rules, rules-based digital advice platforms ensure all customers receive the required standard of service. As the Royal Commission demonstrated, traditional methods of advice have often fallen short in providing audit trails that detail how advice was provided. Such trails represent critical data for compliance audits, and can be routinely automated by robust, transparent and compliant robo advice platforms.
Sargon’s Decimal platform
Despite its potential, take-up of robo advice has been slow. This is, in part, because it’s not always easy to implement. There are several structural impediments, in particular the complexity of the R&D required to translate and codify traditional advice models and circumstances so they can function as robo advice.
Sargon’s Decimal is a platform for digital advice and member engagement, purpose-built for superannuation trustees to add digital advice to their financial products. Configurable to the unique and complex needs of large funds that have an array of products and different services, Decimal provides self-service, rules-based, automated financial advice for members.
Created in 2006, our Decimal platform has benefitted from many years of research, development and refinement, making it a uniquely well-developed and mature robo advice product in the market. It is used by hundreds of thousands of super fund members and has undergone rigorous compliance testing.
Importantly, compliant robo advice is about more than just the algorithms in the “black box”. It’s also about the processes around the advice. We have guidelines on how to qualify customers, what the journey should look like, how you think about the journey, how you monitor and test the advice and algorithms, and what sort of standards there are for logging and storing data.
“Robo advice makes understanding super far easier and more accessible, empowering members to more deeply engage with their fund and financial outcomes."
Some funds are concerned that robo advice will disrupt their traditional business models and eat into their comprehensive advice business. We don’t see it that way. Our experience has shown that rather than disrupting comprehensive advice, robo advice complements it.
For most Australians, robo advice could be the first point of access on the information journey, enabling a deeper understanding of their financial situation and goals, and acting as a pathway to more comprehensive in-person advice sessions should they be needed. In turn, this frees up advisors to focus on high impact work.
Similarly, automating initial engagement tools and compliance solutions allows funds to be confident that basic hygiene factors are taken care of, so they can instead focus their energy and resources on outcomes and growth.
Widespread adoption of robo-advice platforms can and should be a win for all players in the superannuation ecosystem – members, advisors and funds – as it drives enhanced engagement, literacy, compliance, outcomes and growth.