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Written by: Jim Stockpole
If you can learn how to drive a car, you can learn to manage your own money.
That claim was recently made by the chief executive of a new fintech startup – BigFuture Pty Limited .
The cloud-based wealth management service is on a mission to “democratise wealth management” by providing ordinary everyday Australians with sophisticated financial planning tools and resources.
It’s a commendable goal but the notion that if you can learn how to drive a car, you can learn to manage your own money, makes me uncomfortable.
Advice is not a car.
Just understanding or having access to the tools and workings of a car, is far from being able to guide that vehicle on the unique journey to maximise all your probabilities required to reach the most desired financial destinations unique for you.
Advice is not a financial product.
The benefits of quality advice are tangible but there’s much more to learning how to manage your financial affairs than making a series of online financial product decisions or having quick access to real-time portfolio valuations.
An invisible hand…
Advice can be described as an invisible hand that guides people or holds them accountable for their financial decisions, steers them away from bad decisions and if necessary, jolts them out of inaction. The invisible hand of professional advice works only for the best interests of the client and not the interests of those providing the facts, trends, analysis and recommendations.
At the moment, I don’t believe an automated ‘advice’ service can’t effectively do that.
While it may provide comprehensive, valuable product and product knowledge with lots of reminders and insightful buying patterns using the wisdom of crowds, it’s not advice no matter how robust and well-constructed those solutions may be because it lacks the invisible hand.
There’s no question that some of the new online wealth solutions can deliver enormous consumer benefits, however, arguably they’d be more effective in the hands of professional advisers.
Advisers can and will use them, in conjunction with strategic advice, as tools to help them engage and educate clients. They could allow advisers to help more people, regardless of their financial stage in life.
Exposing the gate-keeper…
From inception, the financial services industry has told consumers they don’t have the skill or ability to manage their own affairs so there’s no use trying. Some financial planners became gatekeepers to wealth solutions, forcing consumers to go through them.
Thankfully, that self-interested Berlin Wall is slowly crumbling, as it should. In the process the ‘gate-keepers’ nakedness is at last being exposed . Technology is shaking the industry from its complacency, challenging status quo, and I say ‘bring it on’.
More Australians should learn about wealth management, tax, behavioural finance, budgets and investing. However any business model that aims to become an alternative for professional financial advice, without the invisible hand, is flawed.
Only 20 per cent of Australians seek advice.
A new fintech claiming their financial tools and education will give a greater number of Australians more control over their money (which I assume is their intended meaning of democratising financial advice) is similar to saying the internet will give us more control.
Choice, yes, but control?
Robo-advice is misnamed at present as it lacks the invisible hand. It’s not advice but better financial product selection and education.
In time, however, robo-advice will evolve with an invisible hand.
I predict that like the Wright brothers with only bicycle-making experience championing flight, the pioneers that crack robo-advice with an effective invisible hand will come from left-field, and I’m guessing with strengths in the humanities, not the financials.
What do you reckon?