Fresh Investment Thinking Relevant for Australian High Net Worth Investors

Grant Patterson, Managing Director at Providence recently participated in Whiteboarding 1.0 – a project conceived by Brookvine Pty Ltd to rethink an investment model for High Net Worth and Family Office Investors. Bringing together a group of experienced Chief Investment Officers (CIO’s) and Advisors to High Net Worth / Family Offices to participate in a half-day of vigorous discussion resulted in Brookvine’s Whiteboarding 1.0 report which interprets the discussion on the day.

“Robo-advisors” lack critical human empathy

An article in the Sydney Morning Herald, 8 October 2014 suggests that financial advice has a 58 per cent chance of being replaced by artificial intelligence in the form of Robo-advisors. The article explains that “automated investment services build customised portfolios of exchange traded funds which passively track market indices, and then monitor and rebalance them on an ongoing basis. The virtual devices supposedly yield the same returns as their human counterparts for a fraction of the fees”. Read the full SMH article here.

We believe that the potential for technology to play a role in financial and investment advice is significant, but will not go so far as to replace the need for human empathy and personalised decision making.

There certainly is an opportunity for technology to drive down fees and costs with automatic  rebalancing within ranges , cheaper administration and compliance. As a full service organisation we still need to explore further how technology can reduce fees for clients and drive productivity within Providence. However as noted in the article, human interaction is important.

Machines won’t eliminate human tendencies to be greedy when times are good and fearful when times are bad. This human behaviour can lead to poor investment choices. Also, changing family dynamics and personal circumstances needs to be  intertwined with investment choices – hard for an algorithm to do this. ETF’s are also not risk free, as counterpart’s risk and liquidity can impact on performance and security. The fees quoted by Stockspot of 0.8%  in the article seem high for nil personal advice.

So we won’t yet push “control + alt + delete” to personalised investment advice, although we do need to continue applying technology to enhance performance and reduce fees.