If you work in financial services, chances are you’ve had friends, family members, and strangers at parties ask you for financial advice (yes, we do occasionally get invited to parties). Australians yearn for financial advice. Despite this, financial advice remains difficult and expensive to obtain. Though there have been some issues with the recent tabling of QAR-related legislation, providers of financial advice now feel that they have the certainty required to tackle the problem of advice. Given the dwindling number of financial advisers in Australia, and the increasing range and maturity of digital advice solutions in the market, technology will doubtless be an essential part of the solution.
We see three key data and technology problems in advice. One is all but solved, one has a plausible solution, and one we frankly don’t know the answer to (yet):
- Digital advice — how do we offer digital and hybrid advice to Australians en masse?
- Data to deliver advice — how do we quickly and easily gather the data we need to be able to provide advice?
- Data from the advice process — what can we do with the rich data assets we create through the advice process?
Digital advice
The change in regulation mooted by QAR and the decline in adviser numbers has already — to quote an AMP Digital Financial Advice Market Scan — prompted a “flurry of activity” among digital advice providers. A variety of high-quality tools are now available in the market, hence us feeling that this problem has effectively been solved. They broadly fall into two categories:
- Incumbent comprehensive advice tools — these are well-established offerings, but often suffering from issues common to legacy technology, such as complexity, clunky UIs, difficulty integrating with other systems.
- New entrants — often built by startups, offering a more modern user experience and out of the box integration with advice providers’ ecosystems.
With these tools readily available, advice providers, including superannuation funds and life insurers just need to select the right one and integrate it into their systems. The challenge here is integrating a digital advice tool from a third-party provider with internal data sources and targets such as CRMs and registry system, and external data sources like CDR. In doing this, seamlessness and consistency of advice across channels — such as digital, in person, phone etc — is key. For organisations that already have data management platforms and data quality solutions in place this will be relatively straightforward.
Changes will need to happen behind the scenes too. The limited number of advisers and the rising number of clients per adviser point to a need for increased efficiency. The same kinds of integrations referenced above are equally important in the non-client facing systems and processes used by financial advisers and paraplanners. What is unclear is what model will prevail. The back-office of financial advice providers generally includes an advice platform serving as a system of record, these are often described by their users as “slow” and “clunky”. If this continues to be the case, it is likely that more will be done outside of the advice platform, through integration with best of breed applications and the use of data management platforms.
People will inevitably need to be carefully guided along the journey. Advice providers would be well served by starting with limited and scaled digital advice implementations and experimenting with ways to nudge customers towards using them.
Superannuation funds should also consider the skills and capability required to support digital advice. The staff required to deliver in-person advice may not be the same staff required to manage digital advice tools. Approaches to digital advice will also need to be constantly fine-tuned and improved; funds will need to ensure they are capturing data on the uptake and usage of these tools, and continuously improving them accordingly.
Data to deliver advice
Gathering the data required to deliver advice still poses a significant challenge. In the QAR, Michelle Levy declined to make a recommendation on access to consumer data. She cited the proposed expansion of CDR to include “Open Finance” as the solution to current difficulties in collecting client information for the delivery of advice.
Since then, the expansion of CDR to superannuation and insurance has been paused, with Treasury not due to review this decision until the end of 2024. Other valuable data is held by government agencies like the ATO and Services Australia, and no current plans exist to make this easier for advisers and advice tools to access this data.
Though this problem has not yet been solved in practice, we believe that the solutions are known. Some form of public utility, developed in partnership between government and industry, could make it possible for client data to be accessed for the provision of advice. Such a utility would ideally serve two purposes:
- Allow an individual client to share their data with an adviser or advice tool. CDR provides a good model of how client consent and data sharing can work here.
- Allow advice providers and software developers to access large, anonymised datasets which could be used to support decision making in the advice process.
The solution here may indeed be an expansion of CDR, but the loss of momentum and lack of a plan to incorporate ATO and Services Australia data into the CDR regime is cause for concern here. Advice providers and their partners may need to explore other avenues.
Data from the advice process
Financial advice creates the richest and most complete datasets that financial institutions are likely to hold on their clients. Despite this, we have found that neither advice providers nor organisations like super funds know what to do with this data. The problem potentially lies in the relatively small number of clients that this data is available for — a superannuation fund might have millions of members, but advice records for mere tens of thousands of them. Nonetheless, we feel this comprehensive sample of data must have applications in problems that require cohort analysis. Retirement income strategy, marketing, and member engagement are just a few that come to mind.
With the regulatory handbrake taken off financial advice, we expect the number of advised Australians to grow rapidly in coming years. As well as improving our overall financial wellbeing, we anticipate that this will lead to a host of new opportunities for advice providers throughout the industry.
Advice is one of the topics explored in Novigi’s Q3 FY24 Quarterly Report.
