Whilst digitally-enhanced financial advice seems inevitable following the final Quality of Advice Review (QOA) report, industry members debate the extent of its effectiveness.
Last month, Michelle Levy’s highly-anticipated Quality of Advice Review report was released. Her paper addressed five key industry issues amongst others, which included statements of advice (SOAs), superannuation funds providing advice, life insurance, personal advice and notably, the debate around digital advice.
Levy was “convinced” that digital advice tools could be a plausible solution to the growing concerns that financial advice was widely inaccessible to the average Australian.
“There will be more and more cases where the advice provider will be a computer program or algorithm, while the human adviser, where they are involved at all, will be the intermediary between the program and the customer,” Levy had previously said.
Prior to the QOA’s release, the vast majority of advice firms had already begun adapting to these technological advancements.
A survey of 500 advice practices conducted by Adviser Ratings found that nearly 40% of firms were using Iress’ software Xplan, followed by 10% of respondents using Morningstar’s AdviserLogic.
To further gauge how technology was shifting the advice landscape, Money Management spoke with Stuart Alsop, head of sales at intelliflo.
The UK-based service provider recently launched in Australia, offering its cloud-based digital engagement software to advisers with the aim of increasing efficiencies.
“In Australia, the advice industry has been starved of innovation and intuitive technology solutions for some time, but we’re beginning to see a step change,” said Alsop.
He recognised that Levy’s recommendations had accelerated the wider focus on how digital advice could support the industry, particularly with removing the requirement to provide SOAs.
Also speaking to Money Management, Andrew Baker, global head of strategy and corporate services at Ignition Advice, believed there was widespread acceptance that digital advice would become mainstream.
“Achieving the Review’s objectives requires a large advice supply response. This is most likely to come from financial institutions using digital advice technology to safely and efficiently engage their mass-market customers who have been priced out of traditional financial advice,” he commented.
Joncarl La Rosa, head of advice innovation at Insignia Financial, echoed Baker’s sentiment that technology could help address the accessibility gap in allowing advisers to service more clients.
“The industry is seeing potential benefits to augment their current processes with the use of technology and many advice firms have already started this journey,” La Rosa said.
For many firms, the road ahead would mean updating their client experience through data transfers onto new digital systems and channels.
Unpacking the hybrid model
An advice model which hybridised both technological solutions and human interaction was largely supported by industry professionals.
intelliflo’s Alsop supported the belief that technology would not entirely replace advisers, but advisers who used technology as a core part of their advice process would replace those who didn’t.
“The model of the future is a hybrid digital advice model that automates administrative tasks but keeps the human connection at its core,” he explained.
The majority of advice practices that intelliflo spoke with prioritised human connection as the real value of the profession, instead of favouring full-blown digitised advice.
According to the Australian Shareholders’ Association, robo-advice began in the US around 2010 and expanded to Australian investing circles during 2017. The term was understood as an automated adviser providing online, personalised recommendations.
La Rosa recognised that many advisers initially viewed robo-advice as a potential threat to their careers.
“Most advisers now realise there is still a large portion of the population who want to speak with someone and importantly get help to implement the advice they receive.”
Whilst technology could save time and improve productivity, he encouraged advisers to not diminish the irreplaceable emotion associated with people and money.
Concerns that digital advice options could compromise the quality of advice were instead viewed as a solution to its rising unaffordability.
La Rosa continued: “Digital advice can fill the gap where in-person advice may be too expensive for some consumers”.
Moreover, Baker agreed that simpler digital advice could be delivered faster, at a lower cost and on a wider scale. Individuals seeking more complex and comprehensive advice would still have the option to see a traditional human adviser.
“Digital advice is the only realistic way to make a step change in advice accessibility and affordability,” he said.
Hesitancies and challenges ahead
The move towards digital advice had not come without doubts from industry members, particularly whether it could solve the underlying issues facing the industry.
Although it could serve mass markets with lower complexity, Josh Dalton, director of Dalton Financial Partners, questioned digital advice’s effectiveness to manage complicated situations.
“You cannot replace a human adviser when it comes to helping clients make life-changing decisions or handling sensitive financial matters,” Dalton shared.
Paul Moran, principal of Moran Partners Financial Planning, examined that digital advice models which integrated phone-based consultations with a human adviser might not be any less expensive.
“In the Australian regulatory context, this moves clearly into the personal advice sphere and it is difficult to see how this could be done much more inexpensively than the current situation,” he said.
Moreover, Moran highlighted that biases would remain present in digital advice systems if algorithms were created by a human with a specific outcome in mind.
“Despite the technology spend within financial advice, no-one has yet been able to deliver the efficiencies we all crave.
“Perhaps the lesson is that the holy grail is just that – a quest that cannot be achieved. Notwithstanding this, incremental improvements are being made in efficiencies and improved client outcomes.”
The principal pointed towards the constantly-changing regulatory environment as another source of uncertainty.
Moreover, he argued the fear of being ‘caught out’ by regulators undermined the confidence of those providing digital advice.
Utilising a hybrid model would enable advisers hoping to incorporate digital tools to bypass any regulatory barriers.
“This was affirmed by the [QOA] which concluded that the provision of digital advice does not require specific regulatory changes,” Baker commented.
The future of digital advice
Looking forward, most commentators expected technology to continue transforming the advice industry, especially as more versions of ChatGPT and other artificial intelligence sites were released.
Moran warned digital advice would only work as expected when economic conditions were performing well.
“I cannot see how it will not create harm when markets are poor and investors want to sell at the worst time,” Moran questioned.
Though technology could have certain downfalls, La Rosa expressed certainty that the human element of the adviser/client relationship would remain integral.
“We hope to see this relationship elevated by using digital tools to ensure the advice process is as efficient as possible and clients feel supported,” he added.
