A recent global study highlights growing demand for robo advice. Here’s why automated advice is going from strength to strength
According to the 2022 Robo Advisory Global Market Outlook Report, the robo advice industry is set to experience compound annual growth of 48%, with the market forecast to be worth $US135 billion ($AUD199 billion) globally by 2026.
North America is predicted to be the largest robo advice market. But the Asia-Pacific, which includes Australia, is not far behind. We know for instance, that robo advice has a potential market size of $60 billion here in Australia.
What’s driving demand for robo advice?
The same report points to digital transformation in financial services as a key factor driving the growth of robo advice.
Right across the financial sector digital technologies such as artificial intelligence (AI), are making it easier for everyday Australians to save, transact and invest. Put simply, we’re not only becoming used to digitalisation, we’ve come to expect it.
On the other side of the ledger, the report adds that advances in technology are increasing the effectiveness of robo advice services, and allowing robo advisors to have a higher impact across the value chain.
What does it mean for investors?
Just as automated technologies are improving customer experiences, they are also democratising the process of investing – making it more affordable for all Australians to invest locally and globally, at very low cost, even when capital is limited.
Research confirms that millions of Australians would like professional support for investing. But as the number of licensed financial planners declines, the cost of face to face advice is rising.
In 2022 the cost of providing financial advice to the typical client is sitting at about $3,280. Many Australians simply don’t have the sort of investment capital needed to justify that expense.
Robo advice is filling the gap, helping consumers start investing, and develop the habit of growing their portfolio on a regular basis – often for annual fees that work out to be less than the price of dinner-for-two.
The ‘hidden’ benefit of robo advice
The advantages of robo advice go beyond cost savings. Investors using robo advice gain access to a diversified portfolio of investments that is easy to build and grow over time.
But they get something else too – the psychological reassurance of knowing they are taking positive steps towards improving their own financial security. This benefit can be profound.
A 2019 US study for example, found 92% of Americans say nothing makes them happier or more confident than when their finances are in order. It’s likely we could expect a similar finding among Australians.
This is where robo advice can deliver the best of both worlds. It allows investors to start a sensible investment regime tailored to their goals and risk appetite. This enhances positive feelings of control and financial wellbeing – yet robo advice is also extremely affordable.
The time to start is now
After years of putting off taking active steps to get more from their money, the pandemic has seen a collective awakening among many Australians that the time has come to start working towards their financial goals.
We have seen household savings rise since 2020, and in the past two years, unprecedented numbers of Australians have begun investing for the first time.
For those who are keen to get started, but feel their finances are holding them back, it is worth taking a look at what robo advice has to offer.
As millions of people are discovering around the world, robo advice can open the door to a new and affordable world of investing, with exceptionally low fees that have broken down the barriers, allowing all of us to grow a long term portfolio.
Sources
- https://www.globenewswire.com/news-release/2022/06/06/2456465/0/en/Robo-Advisory-Global-Market-Report-2022.html
- https://www.rainmaker.com.au/media-release/robo-advice-australia-60-billion-industry
- https://www.adviservoice.co/m.au/2020/09/demand-for-financial-advice-doubled-in-the-last-five-years-investment-trends-2020-financial-advice-report
- https://www.ifa.com.au/news/31724-one-in-four-advisers-expect-to-leave-industry-within-next-five-years
- https://news.northwesternmutual.com/2019-07-22-92-Of-Americans-Say-Nothing-Makes-Them-Happier-Or-More-Confident-Than-When-Their-Finances-Are-In-Order
