There is no turning back: Digital is coming to financial advice

Digital advice defined​

Some might say digital has already arrived in the form of robo-advice, but digital advice is quite different — it can be seen as the next generation of advice delivery.

Robo-advice, a first-generation term, typically takes consumers through a simple fact-find and then uses algorithm calculators to allocate or suggest a suitable investment portfolio — usually investment-only and not catering to retirement products such as super, or insurance products. Robo ticks the boxes for providing convenience and self-serve for consumers, and can be a quicker and more affordable way to invest non-super savings. ​

Digital advice, however, is the digital enablement of advice delivery. It includes delivery of single-issue personal advice with a Statement of Advice that complies with best interest duty and related obligations. Digital advice does also use fact-finds and algorithms, but while robo-advice focuses on how to allocate an investment, digital advice encompasses whether or not the customer should actually be investing at all, or adding to super or various other strategies, because of affordability or suitability, and complexity of advice needs. ​

Digital advice swims between the flags

Many submissions to the Quality of Advice Review issues paper have questioned whether the current regulatory framework permits the delivery of digital advice.

Digital advice is a new way to access single-issue personal advice and is not a different form of advice in itself. It can be delivered via three modes: ​

• Customer-led, where there is no human adviser/involvement and help, and education is available within the advice journey. ​
• Adviser-led, with a human adviser leading the customer through the advice journey. ​
• Hybrid, where the customer is able to seek help as needed, or on a triage basis as they progress through the digital advice journey. ​

Because of this, our view at Ignition is that the regulatory framework does not hinder the provision of digital advice and that no regulatory changes are required to enable the adoption of digital advice by Australian institutions.

Institutions can be confident that digital advice swims between the flags, and meets all compliance requirements of traditional advice rules such as best interests duty, and appropriateness test.

Importantly, digital advice does not result in any dilution of compliance standards. Rather, the automation of data gathering, checking and algorithmic development of recommendations, results in consistent and quality advice outcomes for consumers. Data collection is streamlined and automatically checked for outliers, errors, inconsistencies and conflicts. Nothing can slip through the cracks of digital collection. ​

Digital advice serves new markets ​

It is a common perception by many consumers that financial advice is for the wealthy, and traditional providers typically target the minority who have significant levels of investable assets and/or income. Yet, it is everyday consumers who are actually the most in need of, and would benefit from financial advice. And it is large institutions who are well placed to deliver digital advice at scale to meet this need. Super funds, banks, and insurers already have relationships with significant numbers of those everyday consumers, and have the ability to make financial advice, and financial wellbeing, more accessible and affordable for everyone.

Importantly, there is no cap on the number of people who can be served via a digital model, due to a much more efficient allocation of an institution’s resources. This is where the hybrid advice model offers even more advantage, because it allows the institution’s human advisers to deal primarily with those customers most in need of human intervention, while the institution’s digital advice capability deals with other customers who have simpler requirements, need less human intervention, and/or have a preference for digital channels. ​

For the consumer, the advice accessibility and affordability equation is transformed. They can access advice when and how they like, 24/7, via the institution’s digital advice capability, with human advisers standing behind the process, as and when needed.

Craig Keary, CEO APAC, Ignition

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.