Robo-advice is financial advice delivered online via computer,
tablet or smartphone. It uses algorithms and technology in place of
a human financial adviser.
Also known as digital financial product advice or automated
advice, it can offer convenient, low-cost financial advice, but
before you use this service you need to be sure this style of
advice will suit your needs.
What is robo-advice?
Robo-advice refers to financial advice that's delivered by a
computer instead of a human financial adviser. You enter personal
details, such as age, gender, income, assets, financial goals and
risk tolerance, into a computer program and it generates financial
advice, based on the details you entered.
Robo-advice is usually limited to one particular area, for
example investment options. If this is the case, the advice you get
will not consider other things such as debt management, super
contributions, tax planning or the effects of an investment on
Robo-advisers could be:
- startup businesses
- banks offering their customers investment advice
- super funds offering their members advice on their super.
A robo-adviser needs to have an Australian financial services (AFS)
licence or be a representative of an AFS licensee.
How robo-advice works
Digital advice is still developing in Australia, but this is how
it currently works for different types of financial advice.
When you register with a digital advice website, you login to
answer questions about your income and expenses, assets and
liabilities, goals, objectives and risk tolerance. This gives the
robo-adviser information about your financial situation and
aspirations. The computer algorithm then considers this information
when making recommendations.
The robo-adviser then produces an automated statement of advice (SOA) which explains the recommendations
and other important information for you.
Your circumstances can change over time, so it's a good idea to
check that the advice still fits your needs at least every 12
months, or whenever your circumstances change.
A robo-adviser who only gives general advice will not ask you
about, or take into account, your personal circumstances therefore,
you won't receive an SOA. You must be told upfront that you are
only receiving general advice.
When you receive general advice, you'll need to decide whether
the recommendation is appropriate for you, taking into account your
goals, objectives and risk tolerance, before acting on the
information. If you decide to act on the general advice and it is
not suitable for you then you may not get the results you want from
Examples of robo-advice
Superannuation funds may use robo-advisers to give their members
advice about optimising their super contributions or choosing
suitable investment options within their fund.
While the advice may be automated, the implementation may not be
automated. This means you may still have to call your fund or login
to your super account to make the recommended changes.
Some digital advice services will offer investment option advice
i.e. recommend a portfolio of investments for your personal
Standard investment portfolios typically
consist of exchange traded
funds or managed funds.
While some robo-advisers will select specific investment options
for each client, in most cases clients with similar investment
objectives receive the same investment advice.
You may be asked to sign a managed discretionary account (MDA) agreement, so the robo-adviser can
complete the trades on your behalf. This also allows the
robo-adviser to automatically adjust the asset allocation of your
portfolio if it strays too far from the original asset
Many robo-advisers use a broking serviceto carry out the
recommended trades for you. You may need to transfer money to an
account that is accessed by the broking service to make the
recommended investments. Other robo-advisers only provide
recommendations for asset allocation and rebalancing and you will
need to arrange the investments yourself.
Think carefully about whether you want to sign control over to a
computer or whether you would like to have control over the actual
Self-managed super funds (SMSFs)
Some digital advice services advise clients on whether they
should set up an SMSF. You may be able to access these services
directly or you could be referred to an accountant, credit provider
or property developer, who may not be licensed to provide financial
SMSF advice is a complex area and there are limitations on what
digital advice software can do. If you are referred to these
services you need to understand what, if any, benefit the referrer
could receive from the robo-advice provider. Also think about
whether this type of service will satisfy your financial advice
Paying for the advice
This style of advice may have lower advice fees than traditional
financial advisers as they are not using people to assess your
needs. Robo-advice may be an option for people who can't afford
full service financial advice, only have a small amount to invest,
or have simple advice needs.
Advice may be charged on a fee for service basis, and/or a
percentage fee of assets under management, if you choose to
implement the recommendations. You may also be charged a
subscription fee for ongoing services, including regular
newsletters or updates.
The financial services guide (FSG) and SOA should outline all
the fees you will pay for the advice.
Get help to navigate the financial advice
If you choose to meet with an adviser, our financial advice toolkit shows
you how to prepare to meet them, what to expect in the first
meeting and what to do after you receive the advice.
Things to consider before
There are a number of things to consider before getting this
style of financial advice.
There are limitations on what digital advice software can do.
For example, a computer will not clarify your goals and objectives,
nor will it correct any details you enter. It cannot account for
changes in your circumstances if you have a break from work,
increase your debt levels or lose income due to sickness or
Digital advice questionnaires may focus on your investment goals
and risk profile but not ask about your mortgage, debts or other
investments. This is fine if you have already addressed these areas
of your finances but you need to know if the advice won't take into
account your overall financial circumstances and needs.
Robo-advisers should explain upfront if they are only offering
limited advice and should be clear about the risks associated with
If you believe that relevant information has not been taken into
consideration, you should think carefully about whether the advice
is right for you and whether the recommendations are
The advice you receive will only be as good as the data you
enter so it's important to enter your details correctly.
Updating your advice
Find out if and how your advice will be updated, in particular,
if your investment timeline changes, your financial goals shift or
there are other changes to your personal circumstances.
If the advice you receive allows the robo-adviser to
automatically adjust the asset allocation of your portfolio, you
should understand when and why the rebalancing will occur. For
example, will rebalancing occur quarterly or as soon as your
portfolio strays more than 5 per cent from the original mix of
You also need to be clear about any costs or tax liabilities
associated with rebalancing your portfolio.
Asking questions about the advice
Because there won't be a real person giving the advice, you may
not have a chance to ask questions. This may make it harder to
understand the advice and decide whether it's right for you.
Financial decisions are important, so if there's anything you don't
fully understand don't implement the advice until you do have
enough information to make an informed decision.
Robo-advisers may provide educational tools such as pop-ups,
links to definitions, live chats, libraries of articles or
newsletters through their website. These things can be useful but
you may also benefit from doing your own research and seeking other
Fees and other costs
Before you agree to robo-advice, it's important that you
understand the upfront and ongoing costs of the advice, and at what
stage of the process you'll be paying fees.
Also find out whether you can withdraw from the service or any
recommended products, whether there are restrictions on withdrawals
and if there are any costs for doing so.
If you have a problem
The robo-adviser should also provide information about their
dispute resolution process if you are unhappy with the service you
See how to
complain for more information about lodging a complaint about a
financial adviser or financial service.
Robo-advice can be a convenient and cost
effective way to get simple financial advice, however, there are
limitations to this style of advice. Make sure you understand the
limitations and are aware of the costs involved before you sign
Last updated: 10 Nov 2017