The corporate watchdog’s consultation on how to make financial advice more affordable and accessible to more Australians will raise questions about the role of robo advice in helping bridge a growing gap between demand for advice and its supply.
ASIC Consultation Paper 332, Promoting access to affordable advice for consumers, says robo-advice or “digital personal advice” has the advantage of being more cost-effective than traditional (face-to-face) advice models, but that many consumers prefer to develop trust and rapport with an actual person rather than dealing with a “machine” when seeking advice.
ASIC’s Regulatory Guide 225, Providing digital product advice to retail clients, covers the obligations of Australian financial services licensees when delivering financial advice. But the title of the guide, including the term “product advice” hints at part of the reason robo-advice has not really caught on – it remains principally focused on delivering product to consumers when financial advice, regardless of whether it is comprehensive or limited, often encompasses non-product-related issues.
Robo-advice is not new in Australia, but a lack of awareness among consumers is another reason it has struggled to gain a foothold in the Australian market. However, as financial advice is likely to become less accessible and less affordable to consumers as demand grows and supply continues to decline, there has never been a better opportunity for robo-advice providers to make their case to fill the advice gap.
Robo-advice could also provide an opportunity for financial planners in servicing existing clients and new clients, although views on robo-advice among financial planners are mixed.
CoreData’s SMSF Adviser Research conducted in August has revealed that some financial planners see robo-advice as a competitor and a threat to their offer, as it will encourage some clients to abandon them and be self-directed. Past CoreData research has also uncovered some concerns around compliance and robustness of the robo-advice processes.
But it is clear that many financial planners also recognise the potential value of robo-advice, particularly in taking away the workload associated with some lower value clients and in complementing their offer.
Given a changing landscape, many financial planners have already left the industry and others are likely to do so in the near future. Among those who are staying, some may wish to persist with the status quo and hold on for as long as possible. But others will recognise the need to evolve their business and adapt, including by incorporating a robo-advice element in their offer.
While robo-advice is not a panacea to the challenges facing the financial planning industry, financial planners would be ill-advised to ignore the potential value that it can bring to their business. If implemented appropriately, it provides opportunities for financial planners to more efficiently service existing clients, as well as attract and service more new clients, reducing the size of the likely advice gap.
Change is hard. It is not a simple process. But it is those who are willing to embrace change who will be better-placed to grow and thrive in the new advice landscape.
