Digital advice key to QoA review

The only way to address Australia’s advice gap and meet the challenges raised by the Quality of Advice Review is through greater use of technology in financial advice, according to Ignition.

Ignition chief executive, Craig Keary, said incremental changes to advice regulation brought up by the Quality of Advice Review Issues Paper would not go far enough to close the advice gap.

“The key issue is that [incremental changes to advice regulation] incremental measures, which might add 10% to capacity or reduce costs by 10%, will not be anywhere near enough to close the advice gap,” he said.

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“Other cost initiatives, such as reducing the current regulatory load, are also worthwhile, but is clear that the cost reduction potential of such initiatives will also be incremental in nature: they will not improve accessibility or reduce the cost of advice by 50% or more.

“To deliver that scale of improvement, you need disruptive changes to the supply of advice, which only technology-based initiatives can deliver, and at advice price points which are in-line with consumer expectations and/or the financial capacity of institutions.”

In its submission to the Quality of Advice Review Issues Paper, Ignition outlined a number of ways that digital advice, via technology, would play an integral role in the future of financial advice in Australia.

“In the first place, digital fundamentally changes the economics of advice delivery.  Current human advice modes are essentially variable cost models with limited opportunities for economies of scale,” Keary said.

“For example, doubling advice capacity could only be achieved by adding additional resourcing to existing in-person or phone-based advice team, resulting in a substantial increase in costs.

“Digital advice solutions, however, reduce the average cost per piece of advice by changing the cost model from fully variable to a mix of variable and fixed costs. This allows many more customers to be served at the current level of expenditure, and for growth in capacity to occur without costs rising in the same proportion, thereby reducing the cost to serve for each piece of advice.

Keary said digital advice would benefit from being compliant with regulation, therefore swimming “between regulator flags”.

“The regulatory framework does not hinder the provision of digital advice and regulatory changes are not required to enable the adoption of digital advice by Australian institutions,” Keary said.

“Digital advice is a new way to access single issue personal advice and is not a different form of advice in itself.  Institutions can be confident that digital advice swims between the flags, and meets all compliance requirements of traditional advice rules such as best interests duty, and appropriateness test.”

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What a shock, a digital advice provider thinks digital advice is the solution. You don't need to pass the FASEA exam to observe a clear conflict of interest here. Funny, it seems in the advice space it is only financial advisers who have to worry about managing conflicts of interest.

I haven’t looked into ignitions offering but I know of other providers in market. If the digital advice providers are using index tracking vanilla ETFs to gain exposure to the asset classes that they are allocating to, where is the conflict or issue. Doesn’t this allow the Mum and Dad investors access to well diversified portfolios without the risk of them trying to “play the stock market” themselves? I would prefer my Mum (of limited assets) to gain access to the principles of diversification, via an adviser or bank, who use this as a solution rather then turning her away to fend for herself or be prey for the unlicensed sharks.

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