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Online financial advice going for a song

Date

Beverley Head

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Chris Brycki, of Stockspot, outside his office in York Street, Sydney.

Chris Brycki, of Stockspot, outside his office in York Street, Sydney. Photo: Getty Images/Christopher Pearce

A new financial services start-up wants to attract $1 billion of funds within two years as it aims to do to financial advice what PayPal did to payments.

Forget paying thousands of dollars in service fees and trailing commissions, online financial adviser Stockspot wants to disrupt the cosy world of wealth management by automating the tailoring of advice to clients with a questionnaire and a home-grown algorithm - all for $77 a year plus an investment fee of 7 basis points per month of the value of funds under management.

In its first two months, the Sydney-based company claims to have signed up 400 Australian customers.

There are still some tyre-kickers among them, but Stockspot founder and chief executive Chris Brycki said people who had taken the plunge were investing between $2000 and $100,000. Most were young millennials who didn't have enough for a home deposit, and people running self-managed super funds.

Similar online services in the UK (Nutmeg), and US (Wealthfront) are making headway. Last month Wealthfront announced it had $US1 billion of funds under management after two-and-a-half years.

“Given the size of Australia’s self-managed super segment - $530 billion - I think we can get there in the same sort of timeframe. $1 billion is just 0.2 per cent of SMSF assets," he said.

Marc Bineham, vice-president of the Association of Financial Advisers and managing director of insurance and superannuation consultancy Noall & Co, said Stockspot should be viewed as a “stepping stone” for investors wanting to get started in wealth management.

He said only two in 10 Australians were currently getting any sort of advice about wealth management, and if initiatives such as Stockspot could improve that ratio it was a good thing.

He did not, however, see online wealth management as a genuine disruptor to the financial advice sector; ''the internet is full of information but not knowledge'', he said.

Brycki expects the banks will also largely ignore his business model.

“It will be like Myer and DJs who ignored the online threat as long as they could until Asos and The Iconic came along. I think the banks will dismiss us for many years,” Brycki said.

But having learned their disruptor-beware lesson thanks to PayPal, that now seems less likely.

PayPal built its online payments platform right under the noses of the big banks until it commanded a decent share of the payments market – 41 per cent of Australians now use PayPal each month, according to the most recent HP-RFi payments report. The banks now take the prospect of technology-based disruption much more seriously.

And Stockspot is likely to face online competition from the banks themselves, with some developing their own online wealth management systems.

Commonwealth Bank launched MyWealth.com.au last yearwhile the ANZ has an app, Grow, that combines banking and wealth management.

Where Stockspot differs is that it is an entirely online financial advice and wealth management service and doesn’t require any face-to-face interaction to establish identity or sign documents. Users sign up, transfer funds electronically, and start building a portfolio.

At  its core is a home-grown financial advice algorithm. Based on the responses to questions posed on its website that identify investment intentions,  liquidity requirements and  risk profile, Stockspot recommends a mix of  options in Australian, global or emerging markets.

“Then we build a client agreement, you read and review it, then digitally sign it with your name, IP address and the time signed. In the background we then open a brokerage and cash management account on your behalf,” Brycki said.

Users can log in and view their portfolio or print statements, while Stockspot automatically rebalances the portfolio according to the agreed risk profile over the year.

A former funds manager at UBS, Brycki left the firm 18 months ago with a plan to set up a business “to disintermediate financial services and cut out the middle men who take fees but don’t add value”.

Stockspot itself does not have a financial services licence, instead operating as a corporate authorised representative of Calibre Investments. Jumping through the necessary regulatory hoops “stifled innovation and took me more than a year”, Brycki said .