Digital advice can lift compliance standards

Fintech providers have responded to advisers’ comments about their viability as a means to lower the cost of advice, highlighting it can bring down costs without reducing quality and is able to comply with regulatory guidance.

Earlier this week, Money Management reviewed individual submissions to the Quality of Advice Review which noted advisers’ concerns about using fintech within the advice and compliance process. These included problems encountered by larger organisations, whether digital advice would meet regulatory standards and the cost of the technology.

Matthew Esler, joint managing director at Padua Solutions, said: “At the moment, the time and cost [of providing advice] is very high and that is being passed on the client, affordability of advice is getting worse not better. Fintech can help with that and reduce the hours dramatically.”

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He said one reason fintech had seen less uptake was that it had focused on areas which would help the licensee, who usually paid for the technology, such as Customer Relationship Managers (CRM), rather than helping the individual advisers. Among the most-commonly used software by advisers was Microsoft Word and Excel, he said, which presented a clear opportunity for improvements.

“Advisers have been looking for ways to use technology to cut corners but then that reduces the quality, that is going backwards.  You want technology that can alleviate the pressures on advisers without having an reduction in quality.”

Craig Keary, chief executive APAC at Ignition, said: “We believe that digital advice is not a replacement for the great work that human advisers do, rather it leverages a human adviser and makes them more effective and more efficient.”

When it came to cost, Keary said digital advice technology could result in the cost of advice delivery falling by as much as two-thirds from its current cost of around $3,500 a year on average.

Several respondents had highlighted they were unsure if technology would allow them to correctly meet their regulatory obligations but Keary said the Australian Securities and Investments Commission (ASIC) had already provided guidance for fintech.

“Digital advice already swims between the flags, and meets all compliance requirements of traditional advice rules such as best interests duty, and appropriateness test.

“Digital doesn’t dilute compliance standards; rather it lifts them. In particular, the automation of data gathering, checking, and algorithmic development of recommendations, results in consistent and quality outcomes for consumers.”

Both Esler and Keary highlighted the uptake of fintech and robo-advice was higher overseas which demonstrated a possible pathway for Australia in the future.

“There are tools which have struggled here but then found a niche overseas, the Australian market is more complex particularly with tax and superannuation,” said Esler.

“It is already evident that digital advice is taking hold in the UK, with the use of technology to facilitate digital advice delivery no longer seen as radical. Our experience in the UK and Europe shows that hybrid digital advice models are currently the dominant institutional preference. We expect all UK financial firms will have digital advice incorporated into their strategy by the end of 2023.”

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Perhaps reducing the regulatory burden on advisers might be somewhat helpful in reducing advice cost. Just a thought.

When will fintechs and regulators wake up to the fact that using fintech to make the extreme inefficiencies of bad regulation slightly less inefficient, is not sustainable. The only sustainable solution is fixing the bad regulation. Fintech cannot be used as an excuse to avoid fixing bad regulation. That was Hume's objective, and it's why there are so many fintech questions in QAR. The whole fintech agenda in QAR needs to be shelved until the bad regulation is fixed. At that point, far more useful and innovative fintech solutions are likely to emerge for the benefit of all.

Bravo. Pretty simple really but severely compromised by all of the noses in the trough.

“algorithmic development of recommendations” Sounds awful.

Hard to change software with an ASIC lookback program requiring files from 10 years ago.

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