Robo-advice an ‘extension’ of ETF industry

Robo-advice an ‘extension’ of ETF industry

Robo-advice tools would not exist without a developed exchange-traded fund (ETF) industry, and their take-up can be seen as a by-product of the industry’s growth, says BetaShares.

BetaShares managing director Alex Vynokur said robo-advice is an “extension” of the ETF industry, as ETFs allow robo-advice tools to execute their investment strategies.

“[ETFs] enable robo-advisers to deliver the strategies that they’re set out to achieve,” Mr Vynokur told InvestorDaily.

“[Robo-advice] really is a natural extension and almost like an evolutionary step in the development of the ETF industry."

Most robo-advice tools, Mr Vynokur pointed out, invest a consumer’s assets into a diversified ETF portfolio. He said through robo-advice, consumers are able to build out an investment portfolio that is cost-effective but also “risk managed” and “robust”.

“ETFs are flexible, they are low cost, they’ve got strong liquidity and also, importantly, they enable robo-advisers to construct diversified portfolios,” he said.

Mr Vynokur noted that the increasing attractiveness of robo-advice is tied to the growth of the Australian ETF sector. A decade ago such start-ups would not have functioned because the industry was in its infancy and did not offer a wide-range of products.

“Whereas today we do have a significant number of products and they cover all major asset classes – equities, Australian and international currencies, commodities, bonds," he said.

Mark Fordree, chief executive of automated advice firm Ignition Wealth, added that robo-advice tools will flourish in 2016. 

Echoing the sentiments of Mr Vynokur, he argued that robo-advice will provide consumers with cost-effective investment solutions in terms of advice and investment fees. 

According to Mr Fordree, in a year set to experience volatility and extremely low returns, ETF-backed robo-advice tools will present more value than a traditional adviser.

Mr Vynokur said he remains positive about the contribution robo-advice is likely to make to the ETF industry long-term.

“We certainly believe robo-advice is here to stay and that it will grow,” he said.

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