Robot Wors: Can an algorithm replace a cross-border financial advisor?

This article was originally published on BizNews

I am often asked what effect robo-advice has had and will have in our advisory practice. Most people seem surprised when I answer that it has had no effect. The explanation is actually quite simple – the person who is going to use robo-advisors is typically a do-it-yourself type who was unlikely to engage a traditional advisor anyway. These robo-advisors are asset allocators, not advisors. They're not putting together financial plans, cannot help a client balance competing goals or deal with the financial and emotional impacts of life events such as death or divorce. That part of advice – the planning, the relationship – cannot be replicated by an algorithm.

Covid-19 is probably the first bear market that investors using robo-advice have had to live through. I wonder how these investors felt in the midst of the crisis, with only a toll-free number to call or online access? I'm sure it wasn't quite as reassuring as being able to speak to someone who'd be able to answer your questions, deal with your fears and who knows your financial plans.

There is of course space for robo-advice, especially for population segments that have always been underserved, but for the mass affluent and affluent, there are so many facets of the advice process that get lost in the search for returns. These facets are often where the true value of advice can be found – in the relationship between the advisor and the individuals and families they're assisting; in those things that the advisor does on the periphery that may not be immediately obvious; in the considerations that form part of the advisor's thought processes, such as impact of taxation on different strategies, estate planning considerations, etc.

The days of salespeople masquerading as financial advisors are surely numbered. With increased transparency, an advisor can no longer simply recommend an investment and sit back and collect fees. The modern advisor needs a far wider range of skills and knowledge than ever before.

Which brings me to the heart of the topic. Family offices first emerged in the late 19th century and gained great popularity in the 1980s as the ranks of the super-rich grew. The modern family office covers wide areas of advice – investment, fiduciary, tax, accounting, legal, etc, and often in multiple jurisdictions. Given the cost associated with employing all those spheres of expertise, these remain the preserve of the few.

However, in today's world of increased mobility of people and capital, with family members often scattered across the globe, people are in ever-increasing need of multi-disciplinary and multi-jurisdictional advice. As an example, something as simple as a distribution from a South African family trust to a beneficiary abroad has different tax implications for that beneficiary depending on where they are resident (such as SA, the UK, USA, Australia or Portugal). Would it not be useful for your advisor to be capable of cross-border wealth planning solutions without having to revert to requesting advice from other advisors in each of those jurisdictions? What structure is best served for someone looking to invest abroad and looking to emigrate at some point? What are the likely future tax liabilities? Where is an individual who regularly moves between countries tax resident? What are their tax and reporting obligations in these countries? All these aspects are becoming commonplace and there is a very real need for multi-disciplinary advice.

At this point in time it's a very niche environment and often involves an advisor having a different career background. After all, they gave the 2002 Nobel Prize in Economic Sciences to a psychologist. I kind of stumbled into it as an advisor with a legal background, as I have always found the legislative differences between jurisdictions fascinating, and found it natural to become acquainted with a wide variety of subjects when dealing with international planning. Studying and qualifying as financial advisors in multiple jurisdictions has also placed us, as an advisory practice, in a position where we are able to provide regulated advice in a number of jurisdictions.

Even that only takes you that far, I've found. The real bonus is being able to advise within a greater group that deals with a number of different aspects relating to international planning.

With business units in SA, the UK, Australia and Portugal, Sable International assists individuals with a variety of cross border financial planning services that tie in directly with the services the wealth advisory team provides, ranging from nationality and migration, to tax, accounting and forex. Often working in tandem with these teams, the company is in essence a multi-disciplinary business that is geared specifically to the international movement of people and capital. The additional knowledge one picks up from this dove-tailing is invaluable in providing financial advice to individuals with varying needs in these areas, with a much broader understanding of these issues. Issues which may seem to be on the periphery, but can have a sizeable impact on the ultimate advice.

So, will robo-advice impact our advisory practice? There are some things in life that AI can't replace. Just as a robot doesn't have the instinct and experience to cook a chop exactly the way you like it, a robot, that's programmed to do one thing and which only understands numbers, cannot replace the years of experience, empathy and multi-disciplinary approach that a cross-border financial advisor can offer.