The future is Open Banking and financial coaching

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The Australian government’s Open Banking reforms will give customers greater control over their financial information. The move also has implications for the financial-advice community.

There are some in the financial-advice industry who believe the Open Banking revolution will enable advisers to become more like ‘financial coaches’ to their clients than ever before.

As Koda Capital Chief Operating Officer, Andrew Rutherford, says, financial coaching has always been a key part of an adviser’s job – along with the more transactional responsibilities, like setting up trusts and self-managed super funds.

“The real value of an adviser is saying ‘you really can’t be spending that much money on a Friday night if you want to retire at 45; here’s the trade-off you need to think about’,” he says.

He believes the up-side of the Open Banking reforms includes access to clients’ live transactional data – data that will give advisers a much clearer picture of their clients’ finances and allow them to give the best possible advice.

“If you’ve got the facts to support that [advice], based on an analysis and a tool set that goes through all of [the client’s] spending and credit cards and everything else, then it’s a much easier conversation.”

Robo-advisers on the rise

But Rutherford warns it might be robo-advisers that benefit most from the Open Banking reforms.

“I think robo-coaching and apps to help influence behaviour will absolutely come forward,” he says.

With the ability to track a client’s daily transactions, robo-advisers will be able to offer financial coaching at a fraction of the price of conventional advisers.

“If a client says, ‘I’ve got $5000 a month of disposable income to invest’ and their transactional banking records say, ‘yeah, nah, it’s actually $2,000’, then that’s an immediate data point that a robo-adviser algorithm could take into account and use to spit out more granular advice than it currently does,” he says.

“That could actually be a powerful change agent for people who don’t have that discipline to control their spending.”

The hybrid advice/coaching model

That’s not to say robots will replace human advisers altogether. According to Rutherford, those who can afford human advice – higher net-worth individuals – will continue to consult financial advisers in person.

On the other hand, many people who end up using financial coaching apps would have been unlikely to pay for an adviser. And for advisers who target the mass market, he says the future might well lie in a hybrid between human and robo advice.

“For example, you might sit down with an adviser once a year and review your financial circumstances and portfolio but then you may have an app to offer daily advice and track spending, etc.”

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Important: This article has been prepared without taking account of the objectives, financial or taxation situation or needs of any particular individual. Before acting on the information, you should consider its appropriateness to your circumstances and if necessary, seek appropriate professional advice. Any information used in this article is for illustrative purposes only. Andrew Rutherford is not a member of the Commonwealth Bank of Australia Group of Companies (the Group) and the content or any view expressed by Andrew Rutherford does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. CBA, nor members of the Group accept any liability for losses or damage arising from any reliance on external parties their products, services and material.