The future of the financial advice industry is clearly being challenged given the news unfolding at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Perhaps this was the commission Australia needed to have, but the more interesting aspect to consider is where the industry goes from here. In this regard, we see a bright future for automated, digital, augmented or hybrid advice.
As the leader of a technology provider, I probably shouldn’t say this, but I think the innovation agenda sometimes becomes overly focused on the technology itself. Don’t get me wrong: technology is a key enabler. But, frequently, the long-lasting and truly impactful innovation comes a little from left field.
It is more often about who can apply that technology in new ways to generate new customer experiences or new markets, or even resolve challenging business problems. The Royal Commission certainly qualifies as a significant business challenge—or opportunity—that is causing some quiet reflection. It is likely to be a catalyst for the industry to accelerate an innovation agenda.
Consistent application of advice standards
While we can’t know what will come out of the Royal Commission, the issues that have been highlighted tend to coalesce around adviser discretion and interpretation of client needs, appropriateness of advice and conflicts of interest, either at the institutional or the adviser level.
In my view, that is more a reflection of the lack of consistent application of advice standards. The end result is that all of these issues manifest themselves in the potential for highly variable advice outcomes, some of which have been suitably aired in the Commission’s public hearings.
While it will take some time to work our way through the various Commission outcomes and recommendations when they are delivered, the good news is that many of these areas can be significantly resolved through the appropriate use of technology. Technology will not solve the relationship and soft-coaching side of advice, but it can bring technical accuracy and consistency to the production of the advice itself.
When it comes to ‘robo-advice’—we prefer digital or member-directed advice—we’re not talking about a replacement for the face-to-face, comprehensive financial planning channel. This, by necessity, is a high-cost, highly bespoke offering that serves more complex advice needs. Rather, we are talking about how best to deliver automated ‘advice and engagement’ to the large market of middle Australia that constitutes a very large part of the superannuation fund member base.
All of our goals in the industry drive towards the same thing: a dignified standard of living in retirement for members. In this regard, our cause is strongly advanced by enabling a more informed and proactive member base. The challenge that the industry faces is the low (and seemingly ever-shrinking) margins that are available to deliver our products and the high (and ever-increasing) cost of human advice channels. This means it is difficult to service these clients cost-effectively, without employing technology-based solutions.
When you also consider that the advice needs from this group of members are reasonably straightforward; where should I invest? Can I contribute more to my super? Do I have enough insurance? Am I on track to meet my retirement goals? It’s clear these are all discrete pieces of advice that can be easily automated and delivered through technology.
In our view, the issue is not about a machine deciding for you; it doesn’t need to be a ‘black box’ process. Rather, it is about using technology to enable the consistent application of advice standards so that members with similar circumstances and needs get the right advice, 1000 out of 1000 times. In essence, ‘best advice’ can be predetermined and embedded in the technology.
Whether this is achieved through algorithms, machine learning or rules-based decision trees is less relevant. The point is that advice becomes more consistent, predictable, compliant and cost-effectively delivered.
Does the machine know who I am?
Yes, the machine knows me. It knows my circumstances and it provides advice that is relevant, compliant and specific to me.
Using automation and technology to facilitate the advice journey better enables advisers and clients to ‘swim between the flags’. From an outcomes point of view, the machine is able to:
- personalise the advice in real time. If a parameter is changed (the contribution amount, for example), then the advice automatically recalibrates
- provide triage for the client to the right channel at any point. Once they step outside the swim lanes that have been set by the licensee, a hand-off to comprehensive or phone centre support can be affected
- deliver a clear audit trail and compliance log of every client interaction and input, providing complete transparency of the engagement process
- be on-call 24/7, in line with modern client expectations.
There is overwhelming consensus that technology can benefit financial advice in terms of compliance, customer outcomes and efficiencies. However, in some situations technology can be wholly transformative, while in others the expectations should be modest. This can make implementation appear difficult.
So, if technology is just the enabler, how might advice innovation manifest itself from here? In my view, the best part about harnessing technology to deliver common advice topics is that it frees the adviser to focus on the real value-add activities of engaging clients and helping them stay on track.
Impact on advice framework
Prior to my role as Decimal CEO, I ran my own financial planning practice, so when I think about advice, I look at it from a practitioner’s perspective. And I am going to let everyone in on a little secret: the Statement of Advice (SOA) is substantially useless.
I am a strong believer that the best result from most advice is action – you have to do something proactive to drive better outcomes and, in my experience, the biggest obstacle to users taking that final step and implementing the advice being recommended is the SOA document itself. Its practical and legal purpose is without question, but in a consumer-first, digital world it is a major impediment to action.
For trustees of funds, technology-enabled advice is one of the safest and most efficient ways funds can deliver advice to members within our complex regulatory framework. One of the most challenging areas in the delivery of advice is navigating the grey area between factual information, general advice, intra-fund advice, scoped advice and full financial planning – modern software is able to codify through rules and through configuration.
A model for the future?
Clients most value the dialogue and the perspective an adviser brings. It’s not just engagement that’s important to them but also the powerful aspect of a third party holding them accountable to the commitments they have made to themselves.
So, if adopting technology will lead to more consistent, compliant advice, free from conflicts, I wonder whether the real scope for innovation from these technologies may actually lie in the changing role of the financial adviser. How can they operate across the entire financial services industry, both within superannuation and on an individual level?
I believe the advice experience of the future looks similar to that you might have in an Apple Store. When you go into an Apple Store with a problem, the employees use the very same help functions and menus that are available to you online via the Help bar on your machine at home. It’s just that they are expert users of the system and can coach/guide you through the use of the technology. This means they are able to focus all their attention on you and your specific needs. I can’t see why advice should be any different.
Current types of advice, from a regulatory perspective, all predate the rapid rise of customer-driven technology. The Royal Commission will undoubtedly serve as a catalyst to review regulations associated with personal comprehensive advice, personal scaled advice, intra-fund advice, general advice and no advice. This will only help accelerate the redesign of advice models and hence the take-up of suitable technology solutions.