With the advent and steady growth of the self-managed superannuation fund (SMSF) sector, superannuation professionals are steeped in discussion about financial services automation and where it will lead. Some believe automated advice will be the next huge innovation, but it’s proving to be a divisive frontier.

Taking the work of human accountants and leaving it to machines and complex algorithms sounds a little dystopian — which is probably why the concept has been dubbed “robo advice” — but companies like FinDigital want trustees, and advisers, to consider the potential positives of the model. A recent survey found investors both young and old are warming to the idea.

The 2015 Automated Investment Advisers Global Market Review found robo advice is becoming increasingly popular with investors aged 60 and over, because it offers greater transparency, control, and more flexibility. As far as traditional financial advice processes go, winning over the elder camp is perhaps the biggest challenge. It’s now the existing financial advisers, those with beating hearts, who need to be reassured.

And reassurance is what FinDigital managing director Ian Dunbar offers. “There’s an opportunity for financial advisers to capitalise on the robo advice trend by white-labelling [re-branding] an existing solution and offering it to customers who aren’t ready to engage a planner but who want some limited investment advice,” he says. So robo advice might reach a client base that hasn’t been reached before, and won’t affect human advisers servicing clients with big investment portfolios. On the face of it, these are both good things.

But robo advice has its limitations. One is that its analysis is purely algorithmic and therefore not exhaustive. Most automated investment guidance models use “modern portfolio theory” (MPT, a set of principles used to construct an investment portfolio), “efficient market hypothesis” and a survey that determines a client’s risk profile. MPT principles help to lay the foundations of an advisory package traditionally offered by living advisers, but omits crucial variables.

MPT, by design, cannot always take taxes and transaction costs into account when tailoring a portfolio. Nor can it predict volatility. Robo advice proponents suggest MPT is able to accurately summate volatility in a given market, but the simple fact is markets don’t accurately price risk.

MPT neglects investor sentiment too. It’s proven investors often don’t act rationally, and their decisions influence prices and markets greatly. So automated investment guidance will fail to give some investors the complete and risk-minded advice they require. Hence the generally accepted adage that a machine will never trump a human’s judgement.

Robo advice relies on robust software, which places unprecedented power in the hands of those writing the algorithms. Superannuation specialist Reece Agland is concerned unscrupulous providers may prime their robo advice software to promote particular investments. “You don’t know the algorithms they use, so are they going to do it in such a way that it favours their product?” he asks. He’s also worried about the lack of regulation. “I mean, the client has gone on to a computer system and typed things up. If the computer spits out bad advice, who’s going to be responsible for that? Who’s responsible for the best interests duty when it’s the computer doing it?”

Agland says that even with robo advice there is role for the financial adviser. “Financial advisers needn’t fear robo advice. A financial adviser is better able to shape the information fed to the robo advice and is the only one who can really determine if the suggested investments are good for their client,” he says. “They will know things about the client that the robo advice can’t understand because of the relationship they have with the client.”

Despite his concerns, Agland concedes SMSF trustees will lead the charge with automation, because they have a better idea of what they want. And that seems to be the subtext of the robo advice debate — not that it’s unpredictable or untrustworthy fundamentally, just that its appeal to different investor demographics is unclear. Investors who have been in the game for decades, those with big portfolios, and experienced advisers, will likely stay with what they know. Robo advice may be more attractive to the untested; those with new finances and the willingness to explore new territory.