Robo-advice non-compliance will come to light
The corporate regulator might start seeing cases of digital advice not complying with the best interests' duty over the next 12 to 18 months and it might issue enforceable undertakings at this stage to stamp it out, a financial services lawyer believes.
Holley Nethercote partner, Grant Holley, said the Australian Securities and Investments Commission (ASIC) was taking a facilitative approach to new technology which was congruent with the Government's policy to foster innovation, but added it was early days yet.
At this point, ASIC was scrutinising licensing applications from digital advice providers to ensure their services were accurately represented on their websites without being misleading.
"But I suspect that over the next 12 to 18 months we might see quite a lot of ASIC's attention focused on digital advice providers," Holley said.
Holley suggested the robo-advice algorithm should be intuitive enough to inform clients if the service was suitable for them based on their answers to the questions.
"I think there might be some issues around that: people for whom it's not appropriate actually using the tool. It must develop algorithms that reject people for whom it's not appropriate while ensuring that the right questions are asked that relate to the subject matter of what is being covered," he said.
"It's an issue that most well-advised robo-advice outfits are well aware of and they're working at the moment on getting their message clear, and working on their algorithms, or they should be."
At the outset robo-advice providers must keep in mind that the average Australian numeracy and literacy levels were at about 12 years of age, and must design questions in a way that ensured users would understand their investment options, and the scope of the financial advice.
"I think one of the issues will just be the ability of people to go on the website and understand what they're reading, and that might lead to some people using a robo-advice tool when really it's not appropriate for them and they should be seeing a person," Holley said.
AUTHOR
Malavika Santhebennur
Recommended for you
ASIC has accepted a court enforceable undertaking from a Perth-based company auditor who failed to adequately conduct multiple audits on an advice firm that receivers say has $100 million missing.
After a brutal month for adviser numbers, the net loss for June now stands at more than 100 advisers, but the financial year is still on track to end in positive territory.
Two advice platforms have been identified by Adviser Ratings as standouts for efficiency as time-pressured advisers become evermore fickle in their platform selection.
Private wealth manager Escala Partners has increased its alternatives allocations to more than a third in the past three years, describing the asset class as offering “fertile ground” for diversification.
