WHEN I first heard the term robo-adviser, I thought it might be a variation on the iconic Paul Verhoeven film RoboCop. I had visions of financial advisers dressed in armour using catchphrases from the movie such as "Serve the public trust", "Protect the innocent", "Uphold the law" or "You’re in big trouble". I had visions of advisers clunking around in body armour, and I suspect most would have looked more like the Tin Man in the Wizard of Oz than the great Peter Weller, who made the original RoboCop such a cult classic.
A robo-adviser, in fact, isn’t nearly as much fun. Quite how it got this pretentious name, I am not sure. As Lance Solms, who runs the iTransact investment platform, says, it is neither robo nor adviser. He prefers the more retro name of investment calculator. In essence, the robo-adviser is not much of a step from the risk analysis questionnaires that have been around for years. Most of us have answered one of these: Do you sky dive? If so, you are likely to be steered to a high-risk investment portfolio.
Already, a big chunk of short-term insurance is sold end to end through computer-driven questionnaires, which deliver results based on well-written algorithms. Yet I have never heard Willem Roos at Outsurance or Tom Creamer at Telesure refer to these as robo-advisers.
The investment industry has certainly been the last bastion of living, breathing intermediaries. There is a large intangible benefit to sitting face to face with a human being who can gauge your emotions. A good adviser plays an invaluable role at a point of crisis, such as the death of a spouse.
And I appreciate the value of coaching; I am going to the gym more regularly now that I make an appointment with a personal trainer a few times a week. Without that in my diary, I would always make an excuse not to go.
I wouldn’t recommend switching from a trusted adviser to the robo version. But the reality is that a huge portion of the market is not served by financial advisers. The vast majority of financial advisers and their clients are in my demographic, over 50 and white.
Some of the rest are reached by life insurance agency forces, but these intermediaries are still sales driven and usually don’t have the lifetime relationship with clients that are the hallmark of the old-school adviser.
Robo-advisers as they exist now and until they have the kind of artificial intelligence displayed by Commander Data in Star Trek, will probably play a more useful role complementing advisers rather than competing with them. They can use investment calculators to help their clients make informed choices. And maybe it will be worth their while to bring in poorer, younger clients, with, say, R500,000 in assets and R1,000 a month to invest if they predominantly use the robo-adviser and maybe have a five-minute Skype conversation every six months.
Financial advisers like to be compared to general practitioners. But unlike GPs, they usually rely on a third party to help them write a "prescription". Many, for example, use designated fund managers to build model portfolios, often at a fee of about 0.25%. As robo-advisers develop, it may be that financial advisers will be able to bring this capability in-house and to choose portfolios as authoritatively as GPs can choose drugs for patients.
If the big financial houses are moving into robo advice, they are keeping it very quiet. It would obviously make their sales forces uncomfortable if they thought computers would replace them.
So, it has been up to some cottage-sized operations to lead the charge, all of which are known for their shrewd media-savvy bosses. They include Magda Wierzycka at Sygnia, Peter Armitage at Anchor Capital and Warren Ingram at Galileo Capital. Wierzycka says her robo-adviser never pressures clients into investing and allows them to take their time and ask questions. And it promises that information is not retained unless the user of the program becomes an investor.
I think it is fair comment that a robo-adviser can be a perfect introduction to investment for young investors or a simple financial planning tool for investors who want to save, but don’t have enough assets to attract attention from human advisers. Wierzycka goes so far as to argue that the human-based advisory world is ultimately going to disappear. If you are in your late twenties or early thirties and plan to pursue financial planning as a career, reconsider your options, she says. We shall see.
...
WHEN I first heard about the new Liberty Two Degrees, I thought the life office was trying to outdo the Professional Provident Society and set up a product for people with at least a BA and a master’s. In fact, it is the new company for its real estate investment trust (Reit).
For years, the most practical and effective way to invest in commercial property has been through an endowment policy with Liberty Life. This gave access to an unlisted portfolio anchored by Sandton City and Eastgate, dominant shopping centres in Gauteng since the 1970s. I can understand now why Liberty has lavished so much attention on these centres in the past five years. Remember how tired and tatty they looked before that?
Liberty is now listing its property portfolio as the Liberty Reit. Unfortunately, I expect liquidity in the share will be quite limited. About two-thirds of the portfolio will still be owned by policyholders, and a big chunk of the listed portion will be held by the Liberty shareholders’ fund — which will in effect be a permanent shareholder — policyholders who switch out of the endowment, who are locked in for up to five years, and selected institutions.
It is expected that there will be about R10bn of shares in the portfolio listed, and I think it will still be easier and more practical for individual investors to take the endowment than try to chase available shares. But however tightly held the share, property investors will now have an alternative to Hyprop as a pure metropolitan shopping centre play.
It will be interesting to see how the market rates the old-school Liberty portfolio compared with Hyprop’s newer crop, including Canal Walk in Cape Town and Clearwater on the West Rand. Even its older centres, such as Rosebank Mall and Hyde Park Corner, are unrecognisable in contrast to the basic familiarity of the Sandton City and Eastgate layouts. Personally, I would not buy the endowment or the Liberty Reit, but rather one of the unit trusts that invest in Reits and other property shares.
If you are keen to support the Liberty stable, then I can say the Stanlib Property Income Fund isn’t a bad choice. I am sure it will have a chunky holding in the Liberty Reit, but it is independent enough to reduce this when other opportunities arise. The days when house shares could not be sold are over.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.