Robo advice could be a $60 billion market in Australia; here's which companies could gain

Rainmaker Information thinks there’s far more growth to come for the so-called robo advice industry in Australia.

Robo advisers are financial planning and investment services offered digitally and often based on algorithms which determine an investor’s risk profile.

While there are eight robo advice providers in Australia and few publicly report their funds under management, Rainmaker has had a crack at guessing how big it could be.

In the USA, the world’s largest robo advice market, there is A$825 billion in funds under management with 14 million clients through 21 robo advice providers. Adjusting these figures for Australia, Raimaker reckons this equates to $60 billion.

While this would still only be a fraction of America’s, it’s twice the amount Rainmaker estimated just three years ago.

Rainmaker credits this to the fall in physical advisers in just two and a half years and the low cost, with average fees typically half those charged by the average Australia super fund.

“Robo advice is becoming an increasingly attractive proposition in Australia as it is a very cost-effective way for retail investors to obtain limited financial advice and be connected with packaged investment solutions,” said Alex Dunnin, executive director of research and compliance at Rainmaker.

“The financial adviser sector shake-out that has happened over the past few years, where the number of advisers has dropped from 28,000 two-and-a-half years ago to 19,000 now, means that digitally delivered robo advice could rapidly become incredibly important for millions of Australian consumers.”

Who could benefit from the rise in robo advice in Australia?

One of the few robo advisers that is ASX listed is Raiz (ASX:RZI).

Raiz is focused helping its clients invest small amounts, pooling spare change into investment funds.

The company charges a flat monthly investment fee for each user, meaning the more active users it can bring onto its platform, the more recurring revenue it can generate.

As of June 30, Raiz has $800 million in funds under management, which represents 76.3% growth in 12 months, and is targeting to surpass $1 billion by the end of the calendar year.

It has 456,927 customers in Australia and in Southeast Asian markets including Indonesia and Malaysia.

Raiz’s shares are up over 140% in the past 12 months.

Raiz (ASX:RZI) share price chart

One other company that had a foot in the door is Macquarie (ASX:MQG). In early 2016 it launched OwnersAdvisory, which provides custom investment advice.

In mid-2017 however, Macquarie retired the OwnersAdvisory brand after its founder John O’Connell died.

The bank integrated the robo advice service into its broad wealth management platform allowing personal advisers to incorporate robo advice as part of their recommendation.