ASIC releases robo advice guidance

Robo Advice – digital financial product advice for retail investors – is increasingly popular. ASIC has released RG 255 – guidance on providing digital product advice.

In recent years, the fintech industry has given rise to automated advice services popularly known as ‘robo-advisors’. These robo-advisors are designed in part to automate the role of a financial advisor via a computer program comprising complex algorithms and mathematical models that aims to match a client’s risk profile with an asset allocation.

In a new and rapidly-developing field though,  there is need for revised regulation and on 30th August ASIC released its guidance on providing digital product advice, bringing together some of the issues that digital advice providers need to consider when operating in Australia – from the licensing stage through to the actual provision of advice.

“ASIC supports the development of a healthy and robust digital advice market in Australia as a convenient, low-cost option for retail clients, and our guidance will help ensure that consumers can have confidence when they deal with digital advice providers,” said ASIC’s Deputy Chairman Peter Kell.

“ASIC is committed to encouraging innovation that may benefit consumers.”

What is Robo Advice?

Digital advice (also known as ‘robo-advice’ or ‘automated advice’) is the provision of automated financial product advice using algorithms and technology and without the direct involvement of a human adviser. It can comprise general or personal advice, and range from advice that is narrow in scope (for example, advice about portfolio construction) to comprehensive financial product advice.

There are a number of automated investment management platforms available in Australia now, including Stockspot, QuietGrowth and Ignition Wealth. A number of financial product providers, including Yellow Brick Road, Macquarie and National Australia Bank, are also rolling out their own RoboAdvice tools.

Minimum requirements in providing advice

ASIC notes that all personal advice is scaled, or limited in scope, to some extent. Clients who seek scaled advice expect that the advice will leave them in a better position!

ASIC has outlines its minimum expectations for digital advice providers offering scaled advice. At a minimum, providers should:

  • Explain to the client from the outset what advice is being offered and what is not being offered (i.e. the scope of the advice);
  • Require the client to actively demonstrate that the advice they are seeking is within the scope of what is being offered by the digital advice model;
  • At key points in the advice process, inform the client about the limitations and potential consequences of the scope of advice ;
  • Throughout the advice process, inform the client about key concepts and the relevant risks and benefits associated with the advice being provided;
  • Filter out clients for whom the advice being offered is not appropriate, or who want advice on a topic outside the scope of advice being offered;
  • Inform the client about the upfront and ongoing costs of the advice before the advice is given or implemented;
  • Inform the client about how they can withdraw from the advice being provided, and any associated costs, before the advice is implemented;
  • Explain what dispute resolution processes are available to the client if they wish to make a complaint; and
  • Explain why the client is likely to be in a better position if they follow the advice

Robo advice is still a young and developing platform in Australia; it will be interesting to monitor developments over the next twelve months.

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