Robo advice and the entrepreneur

Author: Gareth van Deventer, a CERTIFIED FINANCIAL PLANNER at OUTvest. Photo: @achirathep via Twenty20

As a financial planner, I like predictability coupled with a solid financial road map. Which is probably fascinated by the rise of the “Gig Economy”, “Side Hustles” and entrepreneurs who are building businesses as a cornerstone of their wealth-building activities.

Think about it for a moment – financial advisors want to know what day you get paid and how much you can set aside for investment savings, medical aid and life insurance. But when you’re an entrepreneur and your income is variable, how do you plan for anything with certainty?

How do you sign a debit order for your Retirement Annuity when you’re not sure whether your clients are going to pay you on time and your first priority is making sure that your staff and clients are paid? Considering that three-quarters of the population reach retirement age without a funded pension benefit and hence rely heavily on a government social assistance grant, according to National Treasury, this is an important discussion to be had.

This is where I believe that technology is playing an influential role in adapting to the new world of work and it is great to see how entrepreneurs are embracing robo-advisors both internationally and locally when it comes to investing.

Globally, robo-advisors have become incredibly popular for a couple of reasons:
1. Costs! This is arguably one of the biggest threats to your investment return over time and yet many investors have been quite happy, perhaps blissfully unaware, to pay fees ranging from 2.5% to 4% per year on their investments. Good Robo-advisors are motivated by the objective to reduce fees thereby giving every Rand you invest the ability to go further.

2. Transparency – while a lot of progress has been made in terms of disclosure of costs around your investment, there is still much work to be done. A good robo-advisor can disclose all costs incurred at the click of a button on your PC or mobile phone.

3. Robo-advisors can help keep investors on track around meeting their savings or retirement goals, by calculating current performance and seeing how you are tracking against your pre-established savings goals on a daily basis. Some financial advisors are quick to reference how your fund performed relative to peers but often forget to bring the discussion back to how your investment is performing (tracking)
against your savings goal – which is ultimately how one should measure your investment.

4. Flexibility. The world has changed and entrepreneurs and those working in the “Gig” economy don’t enjoy the same level of flexibility as previous generations. The world of investments is changing to ensure that people like this are not excluded.

Importantly, robo-advisors are no longer simply a fad for tech-savvy young kids keen to manage their investments on their phones or computers. High Net Worth Individuals are happy to adopt the use of fintech to ensure frictionless management of their investments – often in conjunction with their teams of financial advisors.

We see it ourselves where investors are able to setup sophisticated investment products like Retirement Annuities or Endowment products on their mobile phone.

If you are an entrepreneur and you’ve been grappling with how to build a nest egg through a flexible mechanism for doing so, then check out the robo-advisor offerings who are changing and simplifying the way that people invest.

OUTvest is an authorized Financial Services Provider (FSP 47234). Gareth van Deventer is a CERTIFIED FINANCIAL PLANNER and Head of the OUTvest Advice Center.

Sandile Shabangu

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