Digital advice can ‘fill the advice gap’: Otivo

In May, Otivo released its Superannuation Report 2023, which found that there is substantial demand from working Australians for more financial support from their super funds.

The research found 86 per cent of Australians want personal financial advice, and a further 90 per cent want super funds to provide advice on factors that affect their financial future, such as mortgage payments and overall cash flow.

Otivo CEO Paul Feeney said that the only way for Australians to get the advice they need is through online solutions.

“The time for scepticism is over. The industry needs to embrace digital to begin helping the millions of Australians facing rising costs and falling income,” Mr Feeney said.

“This doesn’t mean the death of traditional face-to-face advice. On the contrary, we believe there’ll always be an audience for this type of service. But today, there aren’t enough advisers.”

According to the CEO, the key question is how can the industry ensure more Australians access personal advice? The answer, he said, is finding the right mix of sufficient access points at a suitable price point.

“With the inevitable decrease in recent adviser numbers, we know there’s not enough capacity to provide advice to more Australians,” Mr Feeney said.

“Even if there were enough advisers, will face-to-face advisers be able to deliver personal financial advice at a price point the majority of unadvised Australians would pay?

“Adviser Ratings recently revealed that 63 per cent of Australians would be interested in advice at the right price of $500 or under, which is well below the average cost of providing personal financial advice.”

According to Adviser Ratings’ 2023 Australian Financial Advice Landscape report, which was published in April, the median cost of advice rose 5 per cent to $3,710, while what Adviser Ratings termed “supply challenges” meant fewer than 10 per cent of Australians are receiving retail financial advice.

In addition, almost 80 per cent of Australians said they could not afford that median cost of advice.

“So, is it even worth finding a solution that can provide personal financial advice under $500 so two-thirds of Australian households — that’s 6.3 million households — can access personal financial advice and be better off?” Mr Feeney asked.

“The only conclusion you can come to is delivering advice digitally,” he added.

“The trick is to do it safely without any risk to the end consumer. So, just like other complex industries that benefit from technology like personal banking, insurance and online stock broking, we think consumers can benefit from embracing technology in the advice space.

“Imagine an easy-to-use interface where an individual can build their own plan, and when their situation becomes more complex, they can reach out to a traditional face-to-face adviser.

“A self-directed personal advice service can provide much-needed help that is well below the $500 that Adviser Ratings research highlights. But more importantly, it can be done in a way that puts the client at the centre.”

In order for digital advice platforms to provide this service to clients, Mr Feeney said, it needs to operate under the same regulatory constructs as face-to-face advice.

“It should be licensed the same way advisers are licensed. More importantly, it should be built with the same obligation of putting the client’s interest first,” he said.

“It should be about optimising someone’s situation, so they know what to do next. Not be focused on selling specific products, but rather initially getting the most out of the products they have and only making changes when it is warranted.”

According to Mr Feeney, when matters become more complex, digital advice should refer clients to an adviser.

“When the advice becomes more complicated, like utilising debt to accelerate wealth creation or utilising different structures to hold assets, then the platform would trigger a note that it’s time to see an adviser,” he said.

“The various data points of an individual client would be used to nudge them along their journey.

“A digital advice platform is designed to help the vast majority of Australians with less complex financial affairs. The type of clients whose situation doesn’t reflect the fees professional advisers need to charge for their service and expertise.”

He concluded that digital advice in most cases would be for clients that are not viable for financial advisers to service.

“The advice industry, banks, and super funds have the opportunity to ensure more Australians have access to personal financial advice. All it takes is for an innovative leader to step up and give that access to their clients or members,” Mr Feeney said.

The question of whether there are enough advisers to service clients has been a contentious issue following the Quality of Advice Review’s (QAR) final report, with two opposing views emerging.

Some contend that not all Australians should have access to financial advice, as it should remain a valuable commodity reserved for a privileged few. On the other hand, others argue that every Australian should have access to financial advice, to help secure a better future for themselves and their families.

In the QAR’s final report recommendations, lead reviewer Michelle Levy argued that access to advice could be solved through non-relevant providers.

According to Ms Levy, the spectrum of financial product advice is “very broad” and there are “simple questions that can be answered simply”.

“It is also clear that even where the advice is not simple, many of us have common needs and so not all advice is unique. This means that technology and digital advice tools can be used to support people who are not financial advisers to provide personal advice, which without that support, could only be provided by financial advisers,” she said.

“Digital advice tools can also be made available directly to consumers. Some already are and improvements in technology mean that they are increasingly able to provide more sophisticated personal advice.”

As part of her recommendations, Ms Levy suggested that the Corporations Act be amended to say that personal advice must be provided by a relevant provider where: a) the provider is an individual; and b) either: i) the client pays a fee for the advice; or ii) the issuer of the product pays a commission for the sale of the product to which the personal advice relates.

“In all other cases, personal advice can be provided by a person who is not a relevant provider,” Ms Levy said.