Financial advisers across Australia are bracing for a massive shake-up on their industry. But Clover.com.au is about to reap major dividends from this forthcoming institutional change.
If the Hayne Royal Commission—the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services sectors—has taught us anything, it’s probably that the “Big Four” banks have been guilty of some questionable practices in the past, and will probably now spend the next few years remediating customers for their past poor behaviour.
And then there’s the fact that the entirety of the financial advice industry is about to face a tidal wave of change so significant that it will see many financial planners elect to leave the industry rather than meet higher impending professional standards, and almost all of the rest having to re-think the way they go about providing financial and investment advice.
Smack bang in the middle of this maelstrom of change is the Australian start-up, Clover. Clover is, according to CEO and co-founder Harry Chemay, an online roboadvice platform, but the term is not one he’s entirely on-board with.
“I prefer ‘digitally enabled advice’,” he says, “because ‘roboadvice’ is a slightly pejorative term, with connotations of a creature coming from the future, trying to eliminate advisers, Terminator-style. Nothing could be further from the truth.
“Clover is a digital adviser, in that we’re trying to provide more advice and more quality financial products to more people who just wouldn’t ordinarily have access to it. In my mind there is no reason why, in the year 2019, the average Australian can’t have access to quality financial advice and investment management without needing a six figure income or a seven figure investment portfolio.
“By digital advice, it’s an online interaction or user experience. Australian customers can come on to our site, Clover.com.au, read some blog content, get a feel for how we create portfolios and then go through the advice process themselves and receive investment advice in a tailored Statement of Advice without any cost, or obligation to proceed.”
Born in Malaysia, Harry moved to Bathurst with his family as an 11-year-old and developed an interest and enthusiasm for economics from his Adelaide high school studies. That led to him commence an economics degree with an accounting major at University, before swapping to a banking and finance degree when he moved to Melbourne in his late teens. From there, he took his first steps into the corporate world.
“It was the early 1990s, and investment banking was the place to be for hotshot banking and finance graduates. That, or trading. The goal was to find yourself a job on a trading desk, whether that was equities, derivatives or foreign exchange.”
Harry spent some time in foreign exchange after graduation with a German bank, working with someone who it turns out was typical of an industry noted for taking bright young graduates, working them hard, paying them ridiculous sums of money and burning them out by middle age.
“This chap, I assumed he was 50, but he eventually told me he was 35 years old. I thought, ‘If that’s what trading does to you, it’s probably not what I want to do or how I want to look when I’m 35.’”
Realising that trading and investment banking was not a good fit for his personality, Harry found an investment analyst role with a global finance company, before being told by a uni mate about a Para Planner role in the then private wealth team of global accounting giant KPMG. But he had reservations about the financial advice industry even as his advisory career was just beginning.
“At university, we were told that the so-called ‘retail’ end of wealth was a little bit grubby, a little bit seedy, perhaps not as well-regulated or sophisticated. Everyone wanted to be on the institutional side, nobody wanted to be on the personal advice side. But I always felt a certain pull towards helping others with my knowledge of investing, so I thought, if you’re going to do it, do it with a quality organisation, and clearly KPMG were that. They certainly taught me a great deal about what it takes to be a genuine professional.”
After a decade spent advising every possible type of client, from mum and dad investors to multi-millionaire businesspeople, Harry moved into institutional asset consulting in 2007, where his clients were no longer individuals but superannuation funds, university endowments and, somewhat ironically, financial planning firms.
“I joined Mercer to find out if there truly were individuals and investment firms that could ‘beat the market’ after all risks, fees and taxes are taken into account, and generate what is known in investment circles as ‘alpha’—that part of a return most likely derived from manager skill.
“I thought, maybe there is ‘alpha’ out there. Maybe there are people who can truly generate it, and I realised I wasn’t going to find them in the retail space, because at the end of the day I was just dealing with other financial planners and clients, and I thought I needed to go to the source; I needed to find these people and find out if they truly have ‘the holy grail’, whether they can generate excess returns after all risks are accounted for.
“I now know without a shadow of a doubt that it is all but impossible to beat the market consistently over time once risks, fees and taxes are taken into account. And it’s not just me. The Government’s three-year Productivity Commission report into Australia’s $2.7 trillion superannuation industry last year found exactly the same thing—that the vast majority of superannuation funds failed to beat a simple benchmark constructed by the Productivity Commission after fees and costs were taken into account.”
Having failed to find investing’s holy grail, in 2014 Harry decided to put his combined knowledge of financial planning and investment consulting to good use, convincing two former Mercer colleagues to join him in developing Clover.com.au.
“It was a bit like the Blues Brothers. I was putting the band back together again.”
They spent almost two years working on the solution, growing out their own in-house design and engineering teams to create a highly engaging and intuitive user experience for those who may never have been to see a financial planner before.
“Having been around since late 2014 and in the market since 2016 we no longer get asked if we’ll be around in six months’ time. What we do get asked now is whether roboadvice is going to replace Financial Advisers.
“Roboadvice isn’t going to take the place of a quality adviser. I have been that; I know about structuring, and tax planning and estate planning and all that goes on with that. Roboadvice isn’t that. But it is about someone getting a simple piece of advice on their own terms, in their own time, in their own home. Perhaps even with a nice glass of prosecco in their hand in the evening, rather than having had to fight cross-town traffic to see their planner in the hurly burly of a morning.”
Many advisers see roboadvisors as a threat, but Harry feels that to do so is to miss an opportunity to grow their businesses. In fact, Clover has started working with traditional face-to-face advice firms.
“The original model for roboadvice is one which cuts out the adviser altogether. I thought that was interesting, but not where the future was. I see the future as being that of a hybrid between human and machine: let the machines do what they’re good at, and let humans do what they’re good at.
“That’s what we do: we try to systematise the process of investing by allowing people to have the benefits of that systematic, rules-based investing where the machine effectively runs the code and does the grunt work which no adviser really wants to do, or in the future should have to do to give the client the best experience possible. Then, let the adviser and the client deal with the relationship. This should always be a human to human connection. That’s really our vision of roboadvice: the combination of human and machine working harmoniously together.”
Where Clover stands alone is that it is the only roboadvisor in Australia with its own Australian Financial Services License, obtained in early 2016 after almost a year of explaining to the regulator, ASIC, what roboadvice was and how it could reduce many of the conflicts that riddled the advice industry, as revealed during the course of the Hayne Royal Commission.
“We have a unique license in Australia, a discretionary investment management license. That gives us enormous flexibility in creating portfolios, executing on those portfolios, doing the heavy lifting for the adviser in creating the experience that their clients can access through the adviser’s website. The adviser doesn’t see the Clover livery anywhere; oftentimes the advice is given in the adviser’s name. We’re running the tech, running the portfolios, doing the rebalancing, all the grunt-work that the adviser doesn’t really want to do.”
The Banking Royal Commission has been a significant event in Clover’s momentum.
“The final report was a game changer,” he says. “In Commissioner Hayne’s view, it was simply a misalignment of incentives. The incentives were misaligned in wealth and financial planning in Australia in favour of the big banks and wealth providers to the detriment of the consumer.”
From here, Harry is quite aware of the implications the Commissioner’s findings will have on financial advice in Australia.
“All Australian advisers now legally have to act in the best interests of their clients. There’s conjecture as to whether that’s happened; the Royal Commission has pointed out instances where that clearly hasn’t happened, with many of the super funds connected to the banks having been shown to have not met their fiduciary requirements.”
But it’s Clover which is ticking all the right boxes and can progress unabated where other firms now have stalled.
“The fallout from the Royal Commission has been a net positive for us, as it is going to make traditional advice unviable for the vast majority of Australians, with digital advice, as delivered by companies like Clover, representing the single best solution to the problem of Australia’s 9 million or so ‘unadvised’—people who want financial advice but either can’t afford it or don’t trust advisers.
“Roboadvice can be the solution to this problem.”
So as Australians increasingly turn to digital advisers, it’s widely held that roboadvice will be at the forefront as more solutions become available, while investors start engaging with this range of burgeoning advice models.
Front and centre of this new era stands Clover.
To find out more, visit clover.com.au.