ASIC has recently issued a number of regulatory guidelines for the digital advice provider.
Consumers will be happy to know that the obligations that apply to traditional financial product advisers also apply to digital advisers. This means that any digital advice provider must be licensed to provide advice in respect of the product for which they are providing digital advice.
Skills and competencies to manage digital advice platforms
The guidelines also focus on the skills and competency requirements that must be in place for the provision of digital advice. Even though the digital service provider can outsource the development of the algorithms, they cannot outsource their professional duties. They must have at least one human resource in place who understands the rationale, risks and rules behind the algorithms.
The provider must regularly review the advice provided by the algorithm to ensure that it is legally compliant. Digital service licensees who do not have the requisite human capacity are given 6 (six) months to do so.
ASIC also prescribe that for digital advice providers, there should be at least 1 (one) responsible manager who meets the minimum training and competency requirements for the category of financial product that they are advising on.
Automation is changing the way the financial sector operates
Despite the efforts of the more reactionary advice providers, it’s obvious that the digital advice concept has been welcomed by ASIC. In our view, digital advice will thrive in Australia (or at least not fail for reasons of regulatory intransigence).
The promise of digital advice is not disruption, but evolution. While they won’t be replaced, financial advisors will be forced to adopt some kind of digitisation, whether it is a digital advice platform or process automation in order to be competitive. Hopefully, these cost savings will be passed on to the consumer.
These savings are not immaterial. In their report entitled ‘Rise of the Robots’ KPMG submitted that automation will reduce cost in the financial industry by up to 75%. The increasing demand for speed, accuracy and cost efficiency, beyond what a human workforce can afford to provide, is redefining what success means for business.
Robotics and cognitive automation will change the faces of the capital markets and existing financial services companies. Those companies that are either slow to adapt or resist changing to new technologies will experience displacement as more agile competitors better reconcile the human and the digital.
The financial services industry, and banking in particular, has historically welcomed the replacement of routine activities with automation. They embrace the language of innovation and are generally the first sector to adopt new technology. Many of our clients are working with us to better realise the promise of digital advice.
Digital Advice promises a lot but it’s important to recognise the significant benefits it offers to both consumers and advisers. Consumers obtain accessible and affordable advice while advice professionals are liberated to bring more insight into their existing roles once they are freed from mundane low-value tasks.
For advice professionals, digital advice is less a threat than an exciting opportunity to streamline, innovate and liberate themselves.