1. Robo-advice is…
automated, algorithm-based financial advice given through an online tool, with or without the use of human financial planners. Robo-advice tools are either accessed directly by clients or used by human advisers to assist them in the provision of financial advice.
2. Robo-advisers are more sophisticated, stand alone digital advice tools.
Robo-advisers are more than simple financial planning tools and online calculators, which collect limited information to generate advice. Robo-advisers now consider more complex data inputs, for example, they may assess investors’ risk profiles and recommend investment portfolios.
3. The personal/general advice distinction remains a challenge in the digital context...
Robo-advisers collect a number of personal details from potential clients. This highlights the tension between general and personal advice and the difficulty for an adviser in demonstrating that they provide general advice when large amounts of personal information are collected.
4. …as does meeting the best interests duty…
The current best interests duty safe harbour requires an adviser to make subjective assessments, including whether it is reasonable to consider recommending a financial product. To meet this duty, ASIC recommends licensees filter and triage clients for whom the robo-adviser is not suitable. Demonstrating compliance can be a challenge. Conflicts arising from the construction of recommended portfolios also need to be identified and mitigated.
5. … and controls need to be tailored to the risks of algorithm-based advice.
Governance and supervisory frameworks need to be carefully considered to ensure regulatory compliance. For example, algorithms must be regularly documented, monitored and tested to ensure consistency with the analysis that informs them, initially and over time. Indemnity insurance may also need to be reviewed to ensure coverage for all advice generated by flawed algorithms.
6. Investor profiling is key to good digital advice.
Understanding a client’s objectives, situation and needs is crucial to providing good advice. Knowing which questions to ask is essential for all advisers, both human and robo.
7. Robo-advice represents an opportunity to reform disclosure at the product design stage...
Although ASIC considers the law to be technology neutral and expects robo-advisers to meet existing legal obligations, there is a great opportunity to reform traditional forms of disclosure. For example, if an adviser’s obligation to provide a statement of advice could be met progressively, through pop-up screens and ongoing digital interactions, this is arguably a clearer and more effective form of disclosure when compared to a single, static document. 8
8. Robo-advisers can make affordable, convenient, good quality financial advice more accessible…
ASIC estimates that only 20% of Australians seek personal financial advice. With consumer-driven tools, clients can quickly and directly access advice and manage their investments through simple but sophisticated digital interfaces, at low or no cost, at any time. Millennials, as the biggest generation in history and the first generation of digital natives, are well positioned to take advantage of robo-advisers, especially as their assets and portfolios grow.
9. Cognitive computing, big data and gamification are coming...
and will revolutionise current models. Imagine an app which tracks all of your financial and investment habits, guesses your financial goals as they evolve, tells you how to achieve them, and makes saving fun, all in real-time and at the press of a button. Gamification also presents exciting alternatives to ascertain a client’s risk profile — some argue better than an individual is able to themselves.
10. …but robo-advisers won’t replace human advisers.
Most robo-advisers create investment strategies for a limited range of products. There is no robo-adviser that can currently provide as comprehensive or holistic advice as a human adviser including advice on insurance, tax, investment structures and estate planning. Some segments of the market will continue to prefer human financial planners. Human advisers will also have an increasing role to play in the provision of robo-advice and in hybrid models.