Expanding digital advice a positive but needs ‘careful management’

The latest cab off the rank in the digital advice space is Colonial First State announcing personalised solution for CFS FirstChoice members who do not currently have a financial adviser.

The tool, which CFS said was designed by Otivo specifically for CFS members and tailored to CFS products, will give members access to personalised digital advice in relation to their CFS FirstChoice investment options, contribution strategy and insurance arrangements.

The cost of $88 per annum will be deducted from members’ super account, giving them 12 months of unlimited access, after which they would need to renew if they want to continue using the service.

According to CFS superannuation CEO Kelly Power, the move is a response to a “clear demand for more guidance and advice and for interactive tools to allow members to better understand their circumstances and take action as they seek to remain on track with their goals”.

“Our partnership with Otivo will give members the option to access personalised digital advice on three topics they often seek the most help with: investment options, contributions and insurance levels,” she said.

‘Unique opportunity’

Dr Ben Neilson, a financial adviser at Complete Wealth, said the expansion of digital advice through channels such as super funds “offers a unique opportunity to democratise access to financial guidance”.

“By leveraging existing data, super funds can provide users with personalised advice at a fraction of the traditional cost. This type of cost-effective, scalable model is essential for the future of the financial sector, ensuring that more Australians can make informed decisions about their retirement and savings,” Dr Neilson said.

“We need these solutions to work with and complement the existing advice sector ... clients need to be in a position to receive advice and the above is a giant step towards achieving that.”

Specialist adviser Nathan Fradley agreed, arguing that scalable tools such as this are not an area that financial advisers “should be gatekeeping”.

“I think this can only lead to broader discussions,” he said.

“We can’t service at that basic level as professionals expecting professional wages. We just can’t, so I have no issue with it.

“I know there’s people out there who, if they want to service that part of the market, might lose those clients, but at $88, your value as an adviser is in the translation of what that means to someone for people who need that help, and that’s the majority of people. Just having a calculator is not the be all end all, but it at least helps people better align their super to risk profiles.”

Adviser concerns

While there are a range of positives in terms of access, Dr Neilson added that the role of digital advice in holistic advice provision “will need careful management”.

“While it can provide a starting point for people who may not otherwise seek advice, it is not a complete substitute for comprehensive, personalised financial advice,” he said.

“The key is to ensure that digital advice complements the work of financial advisers by addressing immediate and basic needs, while still leaving room for more in-depth services where necessary. Process and knowledge of capabilities remains key.”

Ben Marshan, director of Marshan Consulting, added that for many financial advisers, the problem with super funds providing advice are centred on the limited information that they can consider.

“From the perspective of planners that see super funds providing advice, they’ve obviously spent a lot of time putting together strategies and implementation,” Marshan said.

“They’ll have life insurance in place, or they’ll have investment strategies in place, and then the super fund comes along: ‘Here’s this bit of advice, and you should do this, but we can’t consider anything else that’s going on.’

“So, from the perspective of planners, they see a lot of the advice that they’ve put in place going wrong based on the advice the super fund’s given, because the super fund hasn’t taken into account everything else that’s going on in the client’s life. That’s where it can go wrong.”

The potential for conflicts of interest was another area that Fradley flagged, though noted that digital advice is still required to meet the best interests duty and “play by all the same rules that we do”.

“I’m optimistic if they do it right, but if they don’t, it’ll be horribly flawed because it will just be conflicted,” he said.

“But if they stay in their lane and they only give advice on their existing products and they probably flag what is potentially problematic for a client or broader things that clients need to consider, or the fact that they may not be the appropriate entity to be giving them advice, then that’s great.

“That’s another touch point, and it’s another thing for the orphan clients that need a little bit of assistance.”

Implementation is key

According to Marshan, one of the key drawbacks for this kind of digital advice is that there is no adviser involved to ensure that the advice is actually implemented once it has been delivered.

“Unimplemented advice is useless,” he said.

“The question is, what are the funds doing to assist the client to implement the advice now that there are going to be things that happen within the fund that they can take care of?

“So, we need to do a switch. ‘Alright, we’ve given you the advice to move from your conservative fund to a high growth fund, because you’re 30 and you’ve got 35 more years before you can be able to access the money.’ Because it’s all happening in fund, they can action that recommendation and make the switch there on the spot, because that can happen as part of the digital flow.”

Where things get more difficult, he said, is for actions that are beyond the super fund’s reach.

“If the person has to contribute money to super so they get a government co-contribution, or they need to go to their employer and do a salary sacrifice arrangement with the employer, how are the funds going to actually action and implement that?” Marshan said.

“A lot of the value that a financial planner has with the client is actually getting them to implement the strategy.”

Interaction with a new class of adviser

The second tranche of the Delivering Better Financial Outcomes (DBFO) reforms is set to expand the ability of super funds to provide personal advice to their members, though the specifics around the new class of adviser are still to be decided.

Despite the lack of clarity, Marshan said the ability for funds to consider their members’ full superannuation more broadly is “probably positive”.

“If they’ve got other superannuation funds, if they’ve got other insurance policies that are in the superannuation environment, then they’re going to be able to consider those within the advice that they’re providing, to ensure it’s appropriate, but that that brings a lot more complexity into the advice you’re providing,” he said.

“How do you gather the information? How do you ensure the information is actually correct and accurate?”

Dr Neilson, however, said he remained “cautiously optimistic”.

“Digital advice will play an increasingly important role, but it’s crucial that the sector works together to maintain high standards of transparency, usability, and ethical practice,” he said.

“This can be a pivotal moment for the financial advice industry, where the introduction of hybrid models – a mix of digital and human advice – will likely yield the best outcomes for consumers.”