Would you take money advice from a computer?

Digital advice has been rising in popularity overseas and is seen as a way to fill the gap offering a much cheaper option. Picture / 123RF

Kiwis are set to start getting financial "robo-advice" this year — a move tipped to help those on lower incomes but which some are warning comes with risks.

Experts says not everyone will be keen to take money advice from a computer and human financial advisers will still have a key part to play.

Investment watchdog the Financial Markets Authority is expected to open applications for exemptions to provide digital advice around KiwiSaver, insurance and mortgages early this year.

Under the current law personalised financial advice is only allowed to be provided by a "natural person".

The government is in the process of changing the law but that is not expected to come into force until 2019.

Research by the FMA has found most of those who get financial advice in New Zealand have assets of more than $200,000, raising concerns that people with lower incomes and assets are missing out.

Digital advice has been rising in popularity overseas and is seen as a way to fill the gap offering a much cheaper option.

About half a dozen companies are said to be keen to apply for the exemptions, with banks and KiwiSaver providers expected to be at the forefront.

Myles Allan, founding partner at Mosaic Financial Services Infrastructure, said he expected some early innovators to include boutique fund managers, with KiwiSaver businesses as well as the big banks.

"I would be really disappointed if the big default KiwiSaver providers didn't get stuck into it," Allan said.

The regulator has criticised the big KiwiSaver providers for not doing enough to get members of their default funds to make an active choice about where their money is invested.

People end up in a default fund when they switch or start a new job and are automatically enrolled in KiwiSaver.

The funds are conservatively invested and there are concerns that people who stick with the funds will not be making the most of their investment and end up with less at retirement.

Allan said the whole idea of being able to get personalised advice and get people out of those default funds should be a big driver.

He believed some of the first digital advice platforms will allow people to play around with switching funds and contribution rates, enabling them to see what difference it could make to their money before they take action.

"You jump onto a website and it will give you the facility to play in the sandpit."

That ability will mean people are far more likely to engage with their money, he insisted.

"Once you have done the simulation and decide to sign up with the provider then you will go though an on-boarding process that will be seamless," Allan predicted.

Others may give people the chance to figure out when they will pay off their mortgage and prod them to think about what they will do with that money once they are mortgage free.

"Face-to-face financial advice is usually a reasonably expensive exercise with advisers unable to efficiently service clients who fall below a certain level of assets," he said.

"Digital advice provides those consumers an opportunity to receive decent financial advice and access to low-cost products — such as exchange-traded funds (ETFs) — albeit without much of the nuance associated with human-based advice."

But it also comes with risks.

In its submission to the exemption, dispute resolution service Financial Services Complaints warned against allowing digital advice for personal insurance because it was easy for people to fail to tell their insurers about pre-existing conditions.

"In our view, this is a particular risk with robo-advice," chief executive Susan Taylor said in its submission.

Law firm Cygnus Law said the FMA's plans could allow for very little regulatory oversight which was likely to lead to non-compliant services and poor outcomes for consumers.

Blair Vernon , managing director of AMP Financial Services say digital advice will have its own challenges. Photo/Supplied.

Jessica Vredenburg, a senior lecturer in marketing at AUT University said: "There is definitely challenges that will be evident as it rolls out."

Whether a person picked it up could depend on their openness in general for technology.
That could mean it hits new segments that might not have had financial advice in the past.

It could be used to create new market segments, Vredenburg said.

But it needed to be done at a level where people can understand it without a human financial advisers, she said.

"What people need to understand is they will need to provide a lot more details in order to get a lot out of it."

That meant users would need to feel comfortable and trust the provider would not sell their information on to a third party.

Potential users also need to be aware that if they fed incorrect information into the computer that could give them incorrect advice, Vredenburg said.

"I think it definitely will take some time to adjust. It will be somewhat segment based. Others will take longer to adapt," she said.

"I do think people see the value in what technology can offer."

But she said there would be times when the human touch needed to be available. It was not the end of human financial advisers.

"It's more about complementing rather than fully replacing. Trying to get that balance where technology can be maximised."

Blair Vernon, managing director of financial advice firm AMP Financial Services, believed digital advice would have its challenges.

"The challenge with robo-advice is you have to have a high level of engagement to do it yourself."

It required people to answer some confronting questions such as, how long will you live for? When will you retire and when will you pay off the mortgage?

People were not keen when faced with a lot of forms to fill in.

"They say, 'That is quite a lot of effort. Can you do it for me?'"

One of the biggest challenges for providers is getting people to engage with their fund.

"The people you are targeting are not necessarily those who are the most engaged."

Vernon said there was a place for automated advice.

"The question is how big is that and how engaged will consumers be?"

Chat-bot popularity grows

Finance firms are among the many companies taking tentative steps into the world of artificial intelligence through the use of chat-bots.

Mortgage broking firm Squirrel launched a chat-bot at the end of 2017 to help people answer questions about how much they could borrow to buy a home.

Start-up insurance company Cove Insurance plans to launch in the New Year using chat-bot technology to allow people to apply for insurance and make a claim via their mobile phone.

Kiwibank began piloting its Kiwibot four months ago to help it cope with an ever increasing load of online queries being put to its online relationship management tool "Dan".

Dan was launched in 2011 and is part bot and part human. Some questions it can answer itself but other, more complex queries, are handled by its team of 25 human staff.

Fiona Murphy, Kiwibank's head of digital, said Dan had been really successful but in a way it had been too successful and had become over-loaded — creating frustration for customers who wanted a quick answer to simple queries.

It found around 20 to 30 per cent of the volume could be answered by a chat-bot.

Murphy said the Kiwibot was designed to handle simple queries such as, "What are the latest interest rates?" or "Where is my nearest branch?", freeing up Dan to tackle the tougher stuff.

She said bots had become more prevalent as the amount of information online had grown making it tougher for people to find what they wanted.

"Bots cut through that."

Instead of having to make four clicks to find the branch locator page people could ask a question and get an instant answer.

Machine learning and artificial intelligence technology had advanced a lot in the last 18 months enabling the bank to create a better chat-bot experience.

But the technology was still new.

Murphy said lots of businesses were using chat-bots to answer simple questions and the next step was to create more intelligent chat-bots that would pre-empt what someone was thinking about.

"The ultimate thing is the virtual customer assistant."

That could involve a computer programme telling you where to put your money to get the best interest rate rather than just what the rate is.

But Murphy said banks were still navigating through the Reserve Bank and other regulators about the difference between advice and packaging up information.
The future is all about voice — a virtual person telling you want to do in a conversational way.

"But not everybody is going to love that."

Human interaction was still important to many people, she said.

Bots could be used for simple sales and service and then when there was a problem or a more complicated situation like a home loan application or investment customers could turn to a real person.

"We still believe our people are a core part of the customer experience."

Andrew Taylor, head of Theta Software, said chat-bots were a way of communicating with people that was a bit more human-like and they worked well on mobile.

"The technology has got to the point where is it useful rather than being totally crap."

Big players like Facebook were investing a lot money into it and other businesses are seeing it as attractive too.

For businesses chat-bots could take some of the peak load off busy call centres but bots could also be used to collect data about what people were asking and whether their questions were being answered well.

"If you have an FAQ [frequently asked questions section] you don't know if you are answering the questions well."

A poor FAQ section could send people to the call centre, he said.

Taylor said bots could now use artificial intelligence to do sentiment analysis which could be used to determine if a person was getting angry or frustrated and then escalate the query to a human.

Like the first websites and apps that were launched chat-bots were set to improve quickly.

It was easy to have a chat-bot, however, it was hard to make them good because people could ask anything of them.

But despite the challenges Taylor expected them to become more prevalent because of the rise of mobile and the way messaging and chat has become a common way for people to interact with their friends and family.

Taylor has been designing chat-bots for about 18 months. The business had a bit of a slow start but it had picked up a lot in the last six months, he said.

It was seeing interest from across all industries, including tourism, electricity companies and even a concrete firm that wanted to make it easy for people to get a quote.
"It is a real range."

Taylor said with digital financial advice coming to the fore next year their use was set to grow further.

"The more people see bots the more people get used to them."