Should you take financial advice from a robot?

Robo-advice is on the rise in Aotearoa, with major investment funds and financial advisers offering digital financial advice tools. We take a closer look at the trend and ask: should you take financial advice from a robot?

If you were born before the year 2000 you probably remember that little paper clip in Microsoft Word who used to help you format your documents. That little guy was an early example of artificial intelligence (AI) helping us get stuff done. 

Fast forward a couple decades to today and AI can help us do just about everything, from buying our groceries online, to choosing what to watch on Netflix. In fact, AI assistants have even started giving financial advice, which is known in the industry as 'robo-advice'.

Is it wise to trust robo-advice when it comes to something as important as our finances? And are we eventually going to be talking to computers instead of real people? Let's find out ...

What on earth is robo-advice?

When we say robo-advice we’re talking about financial advice provided by artificial intelligence (robo-advice is just way more fun to say!)

Let's look at each part separately:

• Robo or artificial intelligence: Artificial intelligence is the ability of a computer or computer-controlled robot to perform tasks commonly associated with humans. 
  
  
• Financial advice: Financial advice involves personal guidance and recommendations from a financial adviser around a range of financial products and behaviours. This may take the form of suggesting certain investments, setting financial goals, or developing better savings habits. 

So, in a nutshell, robo-advice is when an artificial intelligence helps you to make smart financial decisions - whether that’s by choosing investments that are suited to you or budgeting well.

Robo-advice in Aotearoa

Major KiwiSaver funds, mortgage brokers and fund managers around Aotearoa have started to use robo-advice platforms. Milford Asset Management, one of the country’s largest KiwiSaver providers, has a digital advice tool that helps you pick the right KiwiSaver fund for your goals. 

Despite this, Invsta CEO Rachel Strevens says that robo-advice is still in its infancy here.

“We’ve seen a little bit of it in New Zealand, but it’s really early days in terms of how much those investors or end customers are interacting with a robot per se.”

We’re a little behind some other countries – in the US over 3.5 million investors used a robo-adviser to manage their investment portfolios in 2021. That number is expected to grow rapidly until at least 2025. 

Strevens adds that in the early stages of robo-advice in New Zealand we’re seeing more of a hybrid model, where robo-advice and human advice combine.

“One of the good things about robo-advice is that a lot of the tools involved with it are about automating the manual, time consuming processes. This leaves advisers more time to provide value added services and human touch points.”

Are robots taking over finance?

We Kiwis are fairly independent – most of us like to figure stuff out for ourselves. That’s admirable, but it often means we’re slow to ask for help when making  financial decisions. In fact, only one in five of Kiwis have received financial advice, according to our research. 

Robo-advice could be a key to filling this gap by offering accessible, free advice at the click of a button, which can help with less complex financial decision making (such as choosing a KiwiSaver fund). 

Milford KiwiSaver adviser Eachann Bruce says that this is already happening with their digital advice tool.

“A lot of people who are using the digital advice tool already have an idea of the direction that their KiwiSaver will be going and they use that tool as reassurance.”

“[Younger Kiwis] do like to be independent and don’t like to be told what to do. So that’s a way for them to dip their toes into financial advice.” 

On the other end of the scale, robo-advice might not be for you right now. You might have a complex financial situation, be a new investor who needs an expert to explain things in a conversational way or simply prefer face-to-face contact. 

And if you’re worried you won’t be talking to a real person for much longer, there’s good news. Strevens reckons robots aren’t going to take over yet, and there will always be a place for face-to-face advice from real humans.

“Your traditional human financial advisers aren’t going anywhere fast," she says.

"Your traditional human financial advisers aren't going anywhere fast."

Rachel Strevens

CEO, Invsta

“Investors do enjoy using technology when it’s accessible and warranted for that situation but they also enjoy being able to pick up the phone or catch up in person.”

More content about technology: 

• The future of investing with Rachel Strevens
• How to use technology to boost your retirement with Eachann Bruce