Smart tech will drive industry change

features technology Royal Commission tech practice management financial planning financial advice

22 February 2019
| By Oksana Patron |
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The recent revelations from the Royal Commission’s final report have intensified pressure on the financial services industry, even though the sector had been already under the spotlight from regulators, and they’ve made it clear that it is now more important than ever to help financial advisers focus on what really matters for their businesses and clients.

Technology comes as a crucial part of this process and a lot will depend on how well it will handle accommodating planners’ redefined expectations and needs in these unique conditions, and how well it will underpin efforts to free up their time.

Tech providers will also need to focus on finding new ways to help planners address higher regulatory compliance requirements, enhance their usage of technology and data to help them meet their clients’ objective, and assist with the integration of information, the experts said.

In addition, tech will also need to prove its adequacy for advisers through a wider range of offerings with regards to education technology (edutech) solutions which, in turn, will be expected to support planners and their efforts to meet new professional accreditation obligations, imposed on the industry by the Financial Adviser Standards and Ethics Authority (FASEA), such as continuing professional development (CPD) requirements.

Post-Royal Commission sentiment

The recent findings from the Royal Commission suggested that a lack of respective regulatory compliance technology might seriously threaten the existence of many licensees and advisers, Samantha Clarke, a chief executive of tech start-up Advice RegTech, said.

According to Clarke, who won the Innovator of the Year Award at the 2018 Money Management Women in Financial Services Awards, the core of a professional advice practice these days revolves around regulatory compliance technology, given a number of licensees going out of business or those struggling to comply with the new laws.

“The Royal Commission has made it clear that regulatory technology is an absolute must have for every licensee and advisers. If they don’t have regulatory compliance technology then they are putting their business at risk,” Clarke said.

“What we are hearing is, the time for them to develop their statements of advice has tripled or quadrupled so it means practically that customers aren’t getting the advice issued to them fast enough and that’s impacting their customer experience.”

Clarke stressed that even though the statements of advice (SOAs) are rarely read, it is the compliance requirement that needs to be 100 per cent correct, and this should be viewed in light of the recent report from the Australian Securities and Investments Commission (ASIC), according to which, more than 70 per cent of advice was considered non-compliant.

“So there is the huge opportunity to improve that really practical side of developing and checking the statements of advice,” she said. 

“What happened in the last few months is everybody is trying to do that, and they are trying to do that in a traditional way, and the traditional way is taking weeks and sometimes months to get the advice issues to consumers. So that is not a good outcome for consumers and for the industry.”

According to Clarke, some organizations are also trying to tackle this problem by “throwing more bodies at the compliance tasks”. However, such an approach would only drive up costs of business and would not be viable into the future.

“In the short-term, licensees would be spending a significant amount of money on extra costs on human reviewers, but in the medium to longer term, regulatory compliance technology can help scale the efforts of those human compliance reviewers and make reviews more viable from the business perspective,” Clarke added.

Is technology currently letting advisers down?

One thing is certain, the industry has come to a critical point, and both licensees and advisers should reflect on future proofing their businesses. But it is not all black and white.

According to Advice RegTech, the progressive tech savvy licensees have pre-empted a lot of the Royal Commission findings even before the interim report, with a number of advisers already identifying new opportunities, in particular in the area of regulatory technology (regtech), where technology could help them in the most effective way future proof their businesses.

“The key is finding fit for purpose solutions that enable greater efficiency and effectiveness in meeting those regulatory compliance requirements,” Clarke stressed.

However, according to Jacqui Henderson, chief executive of Advice Intelligence, traditional financial planning software no doubt failed licensees, financial advisers and consumers, and the “old world” technology that existed within the financial planning industry was not designed for today’s regulatory environment or consumer experience.

Firstly, current technology failed to provide pre-emptive controls to monitor the quality of advice upstream of the advice process.

“Without quality assurance, there is a serious risk that sits with AFSL [Australian Financial Services Licence] holders as they can only be reactive, not proactive, in the delivery of quality advice of scale,” she said.

Secondly, ongoing servicing and transparent fee disclosure for consumers was powered mainly by archaic systems and there was a massive need, according to Henderson, to move financial planning into a world that was similar to that of net-banking.

Thirdly, technology did not directly link financial advice strategies and investments back to the client’s goals and provide ongoing tracking of these goals. “Therefore, the existing technology is simply not meeting the requirements of our modern advice sector and this needs to change,” she said.

However, on a more positive note, technology can transform financial advice into an engaging and client facing experience.

“Consumers want advice that directly relates to their own individual dreams and life aspirations – they want to feel like they are part of a collaborative process that is being done ‘with them’ not ‘to them’,” said Henderson. “They want to be educated, they want to feel empowered and they want a full picture so they can control the things they need to control, like their goals and cashflow.”

More importantly, consumers should understand that the advice they paid for and paper-based SoAs that were full of industry jargon were not doing them any favours, according to Advice Intelligence’s CEO.

On the other hand, according to Troy MacMillan, a chief executive at Perth-based financial advisory The Wealth Designers (TWD) Australia, not all is lost when it comes to technology and advisers.

“Core to the success of any advisory firm is how much they focus on the delivery of value – that is, what the client actually values,” he said. “Technology isn’t TWD’s differentiator, it’s an enabler.”

It is expected that smart technology should free up time for firms like TWD to otherwise spend it face-to-face directly with clients for up to 60 per cent of working weeks.

“These levels of face-to-face time can’t be made without technology and are in facet key measures of the success of good technology implementations for firms like TWD,” MacMillan said.

When asked if there were any particular tech solutions that were critical from advisers’ perspective, MacMillan said: “Technology is like the electricity grid – you quite simply have to be on it, as we all need it.”

“My thoughts are that technology will replace many old financial planning models that are becoming commoditized but those particular firms are not in the principal advisory space like TWD. 

“We strongly believe that technology is not the differentiator, it’s critically important to drive efficiencies, but not the reason we are in business.”

At the same time, advisers would need more resilient solutions and tools when it comes to customer relationship management (CRM), portfolio and project management, financial planning software, cloud and information management software, data analysis tools and out-sourced service offerings that enhance head office operations.

Furthermore, according to him, there were four key areas that were of particular importance to the adviser firms, including error-free and time-relevant information, project management software, and better presentation support and SEO software. In case of TWD, the requirements for project management software could be broken down into client, project and strategic management, which all were its core skills.

“We have found that old CRM’s have only ever provided client task management, but have lacked the integration required to quickly understand a firm’s live capacity which we call capacity planning’.”

Following this, advisers and licensees continue to feel under a lot of pressure as it was getting harder and more costly to provide advice to their clients, in the opinion of Advice Intelligence.

Therefore, compliance should be designed more as a ‘co-responsibility’ held by both the consumer and advisers in that way that advisers must tailor advice around the conversations they had with their individual clients in relations to their goals. 

“In transforming financial planning into ‘real-time’, advisers can model future scenarios and demonstrate how different decisions impact their clients’ lives, as part of an advice ‘co-creation’ process,” Henderson said.

“By placing the client’s goals and life aspirations at the heart of the process, advice becomes more meaningful to them, encouraging lifelong engagement.”

Technology and soft skills

At the same time, enhancing advisers’ soft skills around the human psychology aspects of financial advice and understanding their clients better is vital to providing a better outcome for clients as well as improving education standards across the board, according to Henderson.

“Financial advice is about helping clients to achieve their life aspirations and goals. It is about understanding then as a human being, their biases, their behavior, their money language, what motivates them, what key financial challenges they’ve faced,” she said.

“The advice community needs more focus on the conversational piece, asking the right questions and having more education around the human element of financial advice.”

Henderson stressed the shift, though, needed to be accompanied by technology that fully supported the human conversation.

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