Providers of ‘robo-advice’ must meet the same education, training and best interest standards required of human advisers and should not be granted transition periods to comply with these requirements, according to the Financial Planning Association (FPA).
Responding to Consultation Paper 254: Regulating Digital Product Advice released by the Australian Securities and Investments Commission (ASIC), the FPA stated any financial advice provider had to meet the current level of organisational and personal compliance, and operate in the same regulatory environment as existing advice providers.
The FPA pointed to past statements by ASIC which indicated that its regulatory guidance was “…channel agnostic and applies irrespective of how the advice is being delivered” and for the regulator to not unintentionally introduce new, lesser obligations for digital advice by providing separate guidance where suitable regulations already existed.
“The principal we believe which must be applied is that any provider of advice must be held to the same standards…”
“The principal we believe which must be applied is that any provider of advice must be held to the same standards irrespective of the channel the advice is provided by. Ensuring organisational competence, compliance with legislated obligations and appropriate systems of monitoring the provision of advice are universal measures to ensure consumer protection” the FPA said in its submission to CP254.
On the question of whether a responsible manager of a digital advice provider should need to comply with current and future educational requirements the FPA rejected any moves to adopt a lower standard than that applied to face to face advice stating there was no good policy reason for adopting lower standards.
The association asked that if the purpose of the new proposed higher education standards was to ensure a minimum quality of advice to all retail consumers how could that be achieved if digital advice providers were given lower training, competence and ethical standards than face to face advisers?
Continuing this theme of equal standards for all advice providers the FPA also requested that ASIC ensured digital advice providers complied with the fee disclosure statement and opt-in obligations under the Future of Financial Advice legislation, where ongoing service fees were being charged.
The FPA also advised ASIC to provide guidance around professional indemnity insurance stating that face to face advice was limited by the amount of clients an adviser can interact with while “digital advice has the ability to scale exponentially, and therefore potential damages requiring indemnity insurance could be considerably higher”.
The submission also recommended that digital advice algorithms be tested to ensure they met the same best interest duties applied to traditional advice with the FPA reminding the regulator of the need for consistency.
“ASIC has already published material on the quality of advice expected of advisers…the same minimum standards are expected of digital advice providers”
“ASIC has already published material on the quality of advice expected of advisers, the FPA believes it is important to make clear that exactly the same minimum standards are expected of digital advice providers,” the FPA submission said, calling for digital advice providers to be compliant from their first day of operation.
The FPA said this was necessary to avoid sending a message that regulations did not apply for some parts of the advice sector and to protect consumers who used digital advice services
“It has always been clear that providers must meet the training and competence requirements through some mechanism. Rather than providing a transition period where digital advice providers do not need to meet the training and competence standards, ASIC should instead ensure providers comply with their obligations,” the FPA submission added.
The FPA just don’t get it. Never has. Never will. Rather than foolishly attempting to slow the emergence of this disruptive technology they should be working to reduce the ridiculous compliance/efficiency burden on advisers. The reason Robo advice will see success is because it’s extremely difficult for advisers to deliver simple advice at a cost acceptable to the clients Robo advice will attract. Rather than helping, however, the FPA has had a hand in raising the cost of advice. Advisers should not wait for the FPA to “fix” things. They will be better served by adding Robo advice to their own tool set as a way to efficiently service simpler clients who one day will need more complex advice for which their fees are fully justifiable.
Sorry Stephen, I don’t agree. All the AFA are doing is trying to ensure that there is level playing field in the area of advice, which is a must. Even your “simpler clients” need appropriate advice. For example a client only wanting income protection still needs to understand a 30 day waiting period still means up to 60 days before they will be paid, they still need someone to explain the difference between Indemnity and Agreed Value and any implications, and so on. Without labouring the point, there must a level playing field when it comes to any “advice”.
Stephen is spot on here. Is the FPA trying to make it easier for consumers to access quality affordable advice, or trying to create barriers to entry for new competitors to their member base?
And who is suggesting that digital advisers don’t expect to comply with existing laws such as Fee Disclosure Statements, Opt In, the timing of compliance etc.
I actually agree with the FPA’s position and congratulate them on taking this stand.
I also read the ASIC Consultation paper 254 and I made a submission that mirrors what the FPA have stated.
In the real world, retail advisers are hamstring and cannot compete with Direct and Robo advice models, as they do not have to comply with the copious rules, red tape and hoops to jump through, that we do.
Best Interest Duties being enforced on all Direct and Robo advice providers, will bring them into line and force them to start doing the right thing and for the retail advised Business Model to survive, this is the ONLY solution that is acceptable.
The FPA should be given credit when they do something that is a step in the right
direction.
The alternative is a dumbed down, Coles Supermarket Car Insurance model, that allows every man and his dog to sell Life Insurance, to the detriment of all Australians.
Unlike car insurance that can easily be cancelled and rewritten with little consequence, if a client loses their guaranteed insurability due to health issues, the potential impact of this can cost millions to that individual and Billions to the Government, if thousands of Australians lose their quality covers, after having them being replaced with rubbish Direct / Robo policies, which cannot be reversed, due to these people now being uninsurable.
Direct Product Floggers and Robo advice models will continue to run rampant and
destroy the foundations of the Life Insurance Industry, if they are not forced to follow the same Best Interest rules, we must comply with.
Spot on Jeremy re best interests duty.
Please FSC, FPA etc, force Robo advice and ALL direct advice on both insurance and super, including industry funds, to ad-hear to the Best Interests Duty. This is the only way to level the playing field and ensure the client is protected.
A client’s brother in law recently contacted me and asked me if i could help him out with his insurance claim. He had contracted a terminal cancer. So i asked him about his insurances. He said he only had the policies in his new super (industry fund). I was instantly sad for the situation the fund (and lack of regulation around best interests) had put him in. He explained that he used to have an advised super policy (all be it through a tied adviser)and had $1 million Life TPD in it however when he changed employers the payroll girl encouraged (this is pretty much advice) him to join the industry fund where he got no advice and just got the automatic cover. He did so “of his own accord” and transferred his funds across from retail super to industry fund. His family is now going to be destitute however there is nothing that can be done as the industry fund did not provide advice and didnt have to act in the best interests of anyone but themselves and the Unions who they are tied to.
Clients (especially the regular wage earning mum and dad clients) require advice when getting policies and proper advice cannot be given by tied insurance advisers who sell only the insurance form one provider and do not have to comply with the best interests duty.
The industry talks about these cowboy advisers who change insurance policies from one to another insurer for commission. At least they are forced to do the right thing by the client and if they don’t then they will be banned and sued, and in the end the client will be looked after. When clients like the one above get screwed by direct super and insurance policies there is nothing that they can do. THIS NEEDS TO STOP and someone needs to be held accountable.
How can clients be expected to know the differences between all the policies available to them when very few BDM’s and tied advisers even know the differences. Only the dwindling number of Independent Risk advisers (mainly the self employed ones) actually know or care about the differences in policies and care enough about their clients to actually act in their best interests.
Without the best interests duty being applied to all product sellers and policies what is to stop someone starting up their own Insurance policy and selling it direct to the public with crazy definitions in the PDS’s which no client will ever read such as: Life insurance will only pay out if die because you get struck by lightning on your birthday in a leap year?
By the way, these crazy definitions have already started to creep into certain policies. Just look at Australian Super’s TPD definition.
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