Decimal founder Jan Kolbusz, who will be speaking at the 16th annual Wraps, Platforms and Masterfunds Conference in the Hunter Valley on 14-16 September, makes the case for automated advice.
There is typically a hype cycle associated with new technologies.
In many cases, a combination of unfounded fear and over-inflated opportunity compete for headlines until sense prevails and a relatively happy middle ground is achieved.
And that’s precisely how the story of digital financial advice, or ‘robo-advice’ as it has become known, has unfolded.
The scaremongers attacked on two fronts – one for the consumers who would be trusting robots with their life savings, and the other for the unfortunate financial advisers who would be pushed out of their jobs as artificial intelligence took over the world.
The opportunists were talking of profit potential in the trillions of dollars, thanks to the large and previously unreachable markets that the robots would seek out.
I should digress for a moment and point out that there are no actual robots when it comes to digital advice, but rather a series of algorithms that adjust advice recommendations as users of digital advice platforms work through a series of questions. Hence the industry’s recently adopted preference for the term ‘digital’ over ‘robo’.
But now that the hype has given way to more serious business-driven considerations, it has become far more apparent that digital advice was never designed to replace humans, but rather to address challenging market reach and compliance issues.
In Australia, 80 per cent of people have never used financial advice. There is no known way in the financial services sector for human advisers to reach them all. But given the low cost to enterprises to implement and use digital advice platforms, a whole new market is being revealed.
To play down the trumped-up trillion-dollar opportunity, not all of that 80 per cent will ever seek any form of financial advice. But it will only take a fraction of that market to achieve any sort of return on investment.
The other 20 per cent of the market – those with significant funds to invest – are likely to continue requiring some level of human advisory interaction, whether they have a preference for self-driven digital interaction or not.
Digital advice relies on defined rules and if exceptions to those rules occur – as they often would when a consumer’s amount and complexity of investment grows – interaction with an appropriately qualified person is the obvious next step.
The additional market reach opportunities are certainly exciting, but compliance is where digital advice comes to the fore.
There are many seemingly intractable challenges associated with auditing manually produced advice documentation. When numerous people are involved, those challenges are multiplied.
Compliance is all about rules – and as we’ve already discovered, digital advice platforms rely on defined rules to function.
So the traditional challenges are not applicable to digital advice platforms that have been designed properly. With ASIC stepping in to provide guidance on digital advice regulation, solutions must have robust, in-built compliance at their core.
Rather than just providing value-add advisory offerings alongside traditional services, a digital advice platform can serve as an enterprise’s compliance and risk management solution as well.
This means human advisers, compliance and risk managers, and the executive teams can be comfortable that they are protected when switching digital advice on. And given the new market opportunities, they will rush to do so.
There’s also the impact on consumer confidence. With ASIC’s involvement sending a clear message that compliance is being taken seriously, and with greater public recognition that digital advice can lock down the rules of engagement, consumer confidence in the use of both digital and traditional advisory services is likely to grow.
So the outcome is that while digital advice may take control of some aspects of human advisory services, one incubates the other.
This omni-channel approach available to organisations creates a harmonious offering that ensures financial advice is accessible to the masses and safe for all involved.
Jan Kolbusz is the founder and executive director of Decimal Software. Book your ticket now to see him speak at the 16th annual Wraps, Platforms and Masterfunds Conference in the Hunter Valley on 14-16 September.
