26 September 2020
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Will fintech solutions keep Aussies from the poor house?

Peter Switzer
19 September 2017

By Peter Switzer
Right now about 20% of the potential Australians who could see a financial planner actually do so. And those building fintech online products know there are 80% of this potential audience — at least 12 million, which is the country’s labour force — who need or could benefit from advice.

Given the fact that I talk to Australians four days a week on my radio program — On the Money on the Talking Lifestyle radio network, I’d argue, that a lot of people will end up in the proverbial ‘poor house’ unless they get serious about their wealth building.

Now this could involve them not wasting their time reading click-bait stories on news websites to spending that time teaching themselves to be DIY financial planners and fund managers.

Yep, that’s what I reckon a lot of retirees are teaching themselves to be. Some have had bad experiences with product-flogging, over-charging financial advisers, while others are simply tight and don’t like paying for services they think they can do themselves.

And certainly lots can do it but lots also can’t.

The ATO has shown an enormous number of Aussies who have started self-managed super funds have ended up in cash, getting safe but low returns. Meanwhile, others have invested themselves and made a meal out of it. Some of these would-be amateur fund managers should never have left externally managed super funds and some of my callers have told me they’re going back!

Can we look forward to a fintech solution to the problem that most people need financial advice? Trust me, I’ve personally surveyed a lot of people on my radio show and yes, they do need advice but they simply don’t get it.

This results in either bad and costly money mistakes for too many Australians so a ‘one size fits all’ solution would be ideal but we’re all different so that won’t work.

I know I could give a ‘one size fits all’ solution to everyone’s basic financial problem but as a financial adviser I couldn’t call it financial advice. Under the law, I need to know the personal details — goals, risk appetite, etc. — before I plot a plan to build wealth.

That’s where fintech solutions will have trouble — they can be good guides for someone who can be profiled in an average way but they could miss some important details.

These important details can make all the difference to a great financial plan that an honest and smart planner might come up with. I doubt whether artificial  intelligence will ever get that good.

Let me give you a classic case. Yesterday a young lady (Sarah, around 30-something) called my radio program and sketched out her money world.

Sarah and her husband had two young kids. They lived in a “lovely unit” with ocean views, worth about $1.1 million, with $300,000 owing. They have a home in Queensland rented out “which pays for itself”. They have about $110,000 in shares and they’re on a combined wage of about $200,000!

They seem like the couple from a Hollywood film based on the smartest young money-managers on the planet. And they’re doing it on a good but not excessive amount of money.

She wanted me to answer her question: “Should we sell everything to get a beautiful bigger house or should we keep collecting investment properties?”

This was too complicated for a five-minute answer on radio so I said she should find an honest financial planner who could sort out their many issues and, potentially, multiple goals.

However, Sarah said she and her husband had been to a planner (why was I surprised that this smart young woman had already done that?) but she said the guy just wanted to tip them into financial products.

I could see this smart, young, admirable Aussie needed someone like a dad or mum money mentor to help her and her husband come up with the specific plan that suited them.

So I did what I seldom do and recommended that she comes to our financial advice business and I’ll sit in on the meeting. I said to her she might only need a financial plan, which the couple could work to over a number of years, until they have changed circumstances and more advice was required.

I can give wealth-building plans that would help everyone get richer but there are always slightly better ones that come out of knowing intimately the clients, their goals, their total income situation — now and into the future — and their tax situation.

When I do my business speeches, I often talk about potential money-making opportunities but I always throw in that “this is not advice because I don’t know your personal circumstances”. And I also throw in that: “If you hear anything that you think you can make money out of, take it as brilliant financial education.”

I think fintech will be a great financial educator but after years of helping people build wealth, I know a fintech solution will be based on a lot of assumptions, which could result in good, but not great, advice.
 Of course, that’s happening now with human beings giving second-rate advice but if that happens, these people can be sued. What will fintech businesses do to prevent them being sued?

Probably give OK and safe advice but it won’t really be bespoke, carefully crafted advice that a great adviser should give to a great young couple. Sarah was a person who really had her act together in so many ways and was smart enough to call in and admit that she really needed extra help.

I don’t think AI will ever be better than a trustworthy, smart adviser but maybe I’m a biased human being! And long may I stay that way!

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