Higher base fees, more complex fee structures and fewer investment options could be holding Australian robo advisers back from reaching the scale their American counterparts have, according to new research from Rainmaker.
Australia has six main companies offering robo advice (Absolute Advice, Clover, QuietGrowth, Six Park, Stock Spot and Raiz) while the US has 16 robo advisers covering 4.3 million clients and $320 billion in assets.
"Australia's robo advice market is immature. But it could grow to $25 billion if it were to develop, in population terms, to match the US market... if it partners with super funds, it could be much bigger," Rainmaker executive director of research and compliance Alex Dunnin said.
Aussie robo advisers charge a median fee of 0.55% per annum which is higher than the US average fee of 0.35% per annum, the Rainmaker research found comparing to US market numbers from BackendBenchmarking's Robo Report.
Fee structures in Australia are often broken down by the client's account balance while US robo advisers in US follow simpler fee structures.
Further, US robo advisers used an average of 37 ETFs while building portfolios but their Australian counterparts only used a media on 11 ETFs.
Super, risk advice hard to find in robos
Robo advisers ask a client a set of personal financial questions to determine their risk profile through an algorithm. Based on this risk profile, the robo adviser recommends the client a portfolio that is often built with low-cost investment options such as ETFs.
"Just because a wealth manager has a website and an app doesn't make it a robo adviser [ASIC money smart has a website for example]," Dunnin said.
Rainmaker research also found that most robo advisers in Australia were not set up to offer life insurance advice or to be used by self-managed super funds.
"These portfolios are assembled under managed discretionary account authorisations, meaning the investments are held in the name of the individual investor. Reflecting this, most are not yet set up to enable SMSF's to use their service," Dunnin said.
"Only two of the six provide superannuation advice with the same number able to provide insurance advice."