The future of financial advice in Australia

Having recently returned from the US, where I saw how technology can revolutionise access to financial advice, I see no reason why Australia can’t follow suit, and even surpass the US in providing sophisticated financial advice to more and more people. Working closely with Andy Rachleff, founder and executive chairperson of Wealthfront, one of the largest digital financial advisers in the world, gave me first-hand experience, and a deep understanding of how digital solutions can be the key to financial security for all.

Here in Australia, we have significant work to do to ensure more Australians can access quality financial advice, but one thing we know for sure, is that the solution has to be digital.

The main hurdle seems to be the outdated assumption that people need direct contact with a human adviser to deliver personal advice. From my experience in the US, that’s simply not true — digital advice can be incredibly effective on its own. We offered phone consultations and made support lines visible, assuming that people would want to speak to a qualified adviser. What we found was that less than 1 per cent of clients actually called for support. If they could find the answer in the app, they were thrilled, and if the website was designed to answer their questions, they never needed to reach out.

This is why after growing to nearly 800,000 clients, Wealthfront still has under 20 qualified financial advisers as support staff making that 40,000 clients serviced by one adviser. That's the beauty of technology — everyone receives the same quality advice, tailored to you, at a fraction of the cost.

In the US, we found that people paid us specifically so that they would not have to talk with a human. As Andy Rachleff said: “If you're completely transparent in what you do, charge a fair and low fee, and keep everything clear — do you need to talk to someone?”

He also noted: “What might surprise people is that the biggest draw of our service is that we do everything through software. The more people who use the software, the more useful it becomes because it can analyse the data it accumulates to discover patterns that humans couldn’t possibly spot. This success of digital advice in the US comes down to automating the financial planning process.”

We rely on our phones for everything these days, whether it’s using Uber to call a ride, Doordash to deliver takeaway, or simply checking the weather. Why can’t we receive real-time financial advice directly from our phones? And why can’t it be better, more accurate, and cheaper than sitting down with a human adviser telling you what to do?

What’s clear is that in Australia, the challenge is making advice more affordable and demonstrating its real value. We can do this by showing people how things like mortgage payments, credit card debt, or super balances would look with advice versus without it, giving them a tangible way to see the benefits. Essentially, it’s about showing what their life could look like with advice, versus without advice.

I’ve seen digital advice work in the US, and in my opinion, Australia is better positioned to distribute financial advice digitally than we think. Two key government decisions will allow Australia to advance in financial literacy if we can embrace the power of technology.

With the increased scrutiny on the quality of financial advice given to Australians over the past five years, this has squeezed out 43 per cent of exiting human financial advisers unwilling to re-register under the new requirements, meaning that more and more Australians are going unadvised, and in need of a solution.

Super funds will soon be required to provide financial advice to ALL members at an affordable price, not just those with larger balances. With over 2.5 million Australians retiring in the next 10 years, that’s a significant number of people who could truly benefit from sophisticated financial advice, if only they had access.

There are other digital advice companies in the US that focus on a hybrid model, believing, like many here in Australia, that a human adviser coupled with technology is the best approach, and they charge accordingly. This approach can work, however, what we found at Wealthfront was that people just liked to know that a phone number was available if they needed it — but they rarely used it. Wealthfront’s client numbers and assets under management, sitting at $60 billion-plus, are proof that digital-first works in that market.

Software can outperform traditional financial advisers because it provides an unlimited number of customers with important services that had previously been available only to the very wealthy. We’re on cusp of significant change in the industry, and this is something I’m really excited for.

Joanna Lawson, head of product strategy, Otivo.