What is digital advice?

• Digital advice can be personal or general.
• It can help clarify if financial advice is for you, without too much commitment.
• Digital advice is only as good as the quality of information you provide.

Robo advice, also known as robo-advice or automated advice, is automated financial product advice delivered online or through an app, tablet or smartphone. It uses algorithms and technology without direct involvement of a human financial adviser.

How digital advice works

Digital advice uses an algorithm based on machine learning or artificial intelligence and requires you to provide information such as your age, gender, financial goals, risk tolerance, income and assets on a digital advice website. Assumptions are made using this information, which will generate financial advice the program determines is most suited to you.

Robo advice usually focuses on a single (advice) issue only, such as recommending suitable investment options. After answering the questions and providing the required information about your financial and personal circumstances, the algorithm takes all this into account before making recommendations and producing a statement of advice (SOA) where personal advice is given and financial products are recommended.

Digital advice can comprise general or personal advice, and range from advice that is narrow in scope, for example, advice about portfolio construction, to a comprehensive financial plan.

This advice will not take your personal circumstances into account or lead to the generation of an SOA, and you will need to consider whether it is appropriate for you before actioning the general advice.

Types of users

Digital advice generally attracts lower fees, as human advisers don't assess your situation and needs. It may appeal to those who:

• have smaller amounts to investment (e.g. younger people)
• cannot afford personal financial advice
• are time-poor
• are curious about or want to 'test the financial advice waters'
• are constrained by geographic distance
• need advice for simple strategies.

Note: Digital advice firms that offer advice on financial products still need to have an AFS licensee or be an authorised representative of an AFS licensee, as per a human financial adviser.