Australian investment consultants take aim at robo-advisers
Australia's Association of Real Return Investment Advisers (ARRIA) has sounded off on robo-advisers, questioning whether these services are providing investors with the correct advice. The organisation noted many robo-advice platforms can't advise towards specific goals, such as paying children's school fees. Some robo-advisers also noted a high probability of achieving goals over the next 15 years with holdings in fixed-interest and cash, something ARRIA contests. Overall, the industry body concluded robo-advisers serve mainly as a method of selling cheap index funds. 

Fears that robo-advice is mis-selling products and not delivering the best outcomes for clients continues to raise concerns across the financial advice industry.

While the technology behind robo-advice is making it cheaper to invest, it doesn't mean it is actually providing advice let alone the right advice, says the Association of Real Return Investment Advisers general manager Rebecca Jacques.

"If you actually look at what robo is doing, it's a very good way of selling passive index funds at a low cost," Jacques says.

She told a recent Calastone forum that she put a few global and domestic robo-advisers to the test by giving each the same simplistic target: to pay her young children's private school fees.

Every robo asked for a country of origin; only one asked for a tax bracket - but what was "scary" was that not one asked if the funds would be used for private school tuition, she notes.

In every single instance, the robo advised: "You have 100% certainty of achieving your objective by investing in fixed interest and cash next for the next 15 years."

Based on today's capital markets and for the next five years, there is "no way" the goal is achievable, she points out.

Jacques even rang one robo-adviser to determine what type of forecast is used in providing estimates, to which the company replied, "none."

What's "wrong" is the fact that the wealth management industry faces constant scrutiny and regulation in providing advice, but those in IT can simply "type anything" in an algorithm and sell it to mum and dad, she says.

Perth-based start-up, PictureWealth, is attempting to defy such limitations and "do what hasn't been done before", which is provide digitised advice across all aspects of personal finance, says its founder David Pettit.

The app, which aggregates different accounts to paint a holistic snapshot or a 'welfie' of finances, is a free online tool that allows users to interact with chat bot FLIQ (Financial Literacy IQ) about financial matters ranging from bank balances and superannuation to insurance policies.

Unlike the Qantas Money app, which only goes as far as aggregating accounts, PictureWealth takes the next step by employing filters to help users understand what they could be doing better or differently in managing their money, he says.

The robo-advice element for instance, will provide guided decisions if it makes sense to buy an investment portfolio or if the money could be used elsewhere to pay off a credit card or mortgage or kept in savings.

He agrees the "advice" element of robo-advice is a misnomer; a lot of robo-advisers are either selling or helping investors find investment products.

Welfie meanwhile, is attracting interest from advisers wanting to use the software for clients. It isn't intended to disrupt the advice industry, rather to complement it, says Pettit, who is also managing director of Advocate Private Wealth.

This is an extract of a news story first published in the latest issue of Financial Standard. You can view the full article on our free iPad app.