Six Park is an automated investment service backed by Australia’s preeminent investment experts. We are typically placed in a sector known as “robo-advice” – it’s a label we don’t really like, as it ignores the value and experience of the people behind the automation (which is why we call Six Park “Robo Plus”).
Be that as it may, new technology can create new anxiety, and it’s pretty natural to want reassurance when you’re thinking about investments. Few things in life are certain, but here’s one guarantee – there is no room full of actual robots managing your money if you choose a robo-advisor. Here are the top persisting myths about robo-advice, debunked just for you.
1. ROBOTS ARE MANAGING MY MONEY
Sorry, but no. It’s easy to see where this perception started – the word “robo” does tend to create visions of shiny metal men plotting to take over the world. In this instance, though, what robo means is programmed advice that automates the most time-consuming elements of financial management such as risk profiling and rebalancing. This gives the very real people behind the scenes more time to choose the right investments and asset allocation guidance to offer customers. It also keeps costs very low.
2. ROBO-ADVISORS CAN’T GET TO KNOW YOU THE WAY TRADITIONAL ADVISORS DO
The “robo” part of robo-advice is about automation and technology – not about removing all human interaction. Robo-advisors use technology to boost efficiency and lower costs, while communicating in ways that are typically more convenient and natural for younger investors. That means most robo-advisors are available to clients by email, phone, online chat (or sometimes even in person). There are humans behind the screens and processes who make sure clients’ needs are understood and met.
3. ROBO-ADVICE IS ONLY FOR “SMALL” INVESTORS
Nope. People with large balances have just as much to gain from robo-advice, with fees typically much lower than traditional investment advice. The compound effect of fee savings has a major impact on your balance, no matter how big or small it might be. Many large investors use robo-advice as a “hub” portion of a “hub and spoke” strategy, where the “spokes” are alternatives such as stock selection or private investments.
4. ROBO-ADVICE CAN’T COMPETE WITH ACTIVE STOCK PICKERS IN TERMS OF PERFORMANCE
Not true. There is growing evidence that investing in exchange-traded funds (ETFs) such as those favoured by robo-advisors produces more reliable results than traditional stock picking or timing the market. Robo-advice takes the emotion out of investment decisions, steering clear of herd mentality. Warren Buffett is a huge advocate for index funds (ETFs) – check out the most recent results of the famous million-dollar bet to find out why.
5. ROBO-ADVICE IS A FAD
Think again. AITE estimates that robo-advisors were managing $60 billion of assets in the United States in 2015, and BI Intelligence forecasts that robo-advisors will manage $8 trillion (or about 10 per cent) of global assets by 2020. Millennials in particular are embracing robo-advice for its transparency and ease of use. That’s not going to change in a hurry.
6. MY DATA ISN’T AS SAFE WITH A ROBO-ADVISOR
Not true. Security is paramount to robo-advisors, who invest heavily in system security as well as client privacy protection. At Six Park, confidential information is encrypted in transit using SSL (Secure Sockets Layer) and passwords are encrypted using one-way hashing algorithms – meaning if the database was compromised, passwords remain secure. All information is stored in data centres with physical and environmental controls, and there are equally secure back-ups so data can be restored in the event of a disaster.
7. MY MONEY ISN’T AS SAFE WITH A ROBO-ADVISOR
Again, not true. Your assets should be established in your own name – and if they’re not, then steer clear. If you invest with Six Park, two accounts are opened for you. There’s a cash management account with Macquarie Bank, which is used to fund your investments and collect distributions and asset sales. There’s also an online brokerage account with Open Markets, an execution-only stockbroking business, which is used for your investment trades. Six Park never holds your money or pools it with anyone else’s – and if Six Park ceased operation, you’d still have direct control of your accounts, cash and investments.