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Robo Advice is not a one-size-fits-all product. There is a range of different styles to choose from. We put the key options under the spotlight. It lets you recognise what’s available, and which type of automated advice could be right for your style of investing.

Types of Robo Advice

  1. Self-Learning Artificial Intelligence?
  2. Robo Advice With a Human Touch
  3. Micro-Investing Apps

1. Self-Learning Artificial Intelligence

Mention ‘artificial intelligence’ (AI) and images of sci-fi blockbusters come to mind. But in the world of investing, AI and machine learning has been supporting the decisions of financial institutions for some time.

Sophisticated algorithms can assess a vast array of data in real time. This makes it easy to pick trends in equity markets, giving investors an opportunity to buy in before the rest of the market catches up.

The benefit of AI in this space is that it takes human emotion and personal biases out of investment decisions. For retail investors in Australia, direct access to this type of AI is limited. However, providers such as Jaaims are entering the market providing AI-driven stock recommendations and portfolios.

As the cost of technology falls, so too will the accessibility – and likely the supply, of AI-determined portfolios.

2. Hybrid: Robo Advice With a Human Touch

As the name suggests, hybrid Robo Advice combines an investment account shaped by Robo Advice yet still with the ability to access a human for tailored advice – often via phone or apps like Zoom.

This combination means investors face a lower cost than traditional face to face advice. However, it also gives consumers the reassurance that they can still reach out and speak to a financial adviser if necessary.

This type of advice may be best-suited to those investors who have used a financial adviser in the past, but who can no longer afford full service advice. A recent report shows the median advice fee has risen to $3,529 in 2021[1].

3. Micro-Investing Apps

For investors with very limited amounts to invest, a number of micro-investing apps like Raiz Invest employ Robo Advisers. It helps to keep the costs low, which is especially important if you don’t have much capital invested. But it’s not for everyone.

Micro-investing apps are often a pooled investment. This means your money is combined with that of other likeminded investors in an overall fund. This lowers the fees paid by investors but reduces opportunities to customise your portfolio. 

The Robo-Advice Process

Now you know the different types — let’s look at the Robo Advice process

Robo Advice – or digital automated advice, is a low-cost financial service that allows consumers to automate investing. This makes Robo Advice attractive for those who are new to investing, and for those who aren’t looking for advice covering the full spectrum of their money management.

The Robo Advice process typically starts by filling out an online questionnaire. This allows the Robo Advice service to determine the portfolio best-matched to your goals, views around risk, and life stage. Or you may be able to simply select your preferred portfolio.

The portfolios on offer through Robo Advice are diversified, typically being made up of a basket of exchange traded funds (ETFs).

Each portfolio can either cover a range of different asset classes including Australian shares, international shares, cash, fixed interest, property and infrastructure. Or you may be able to select a portfolio made up of a single asset class. This option can fill a gap in an investor’s existing portfolio.

From here, sophisticated technology is used to monitor markets and automatically rebalance each portfolio. This way, the portfolio continues to reflect an investor’s own goals and risk tolerance. As the rebalancing process is automated 24/7, Robo Advice is available at a fraction of the cost of face to face advice.

Meanwhile, investors have the benefit of a diversified investment, and are able to track their portfolio’s progress any time via computers, smartphones, or tablets.

In this way, Robo Advice eliminates the need to pore over the latest market movements, analyse sectors and individual stocks, or stress over which is the ‘right’ investment decision.

How Robo Advice is Shaping Up in Australia

Rainmaker Information[2] notes that, “Robo advice is becoming an increasingly attractive proposition in Australia as it is a very cost-effective way for retail investors to obtain limited financial advice and be connected with packaged investment solutions.”

As the number of financial advisers operating in Australia plunges to new lows, digitally delivered Robo Advice is set to become the go-to for millions of Australian consumers.

At present, eight Robo Advisers operate in Australia, offering an average of seven investment solutions. Seven out of ten options are diversified meaning investments are spread across shares, property or bonds.

Rainmaker notes that low fees are a key part of the appeal for Robo Advice.

Average fees are just 0.3% p.a., based on a $10,000 investment. When combined with the embedded fees of the underlying ETFs, total fees are likely to be around 0.4% to 0.5% p.a. To illustrate how competitive this is, it works out to about half the total fees charged by the average super fund in Australia.