financial advice

Digital advice requires human element

digital advice

The definition of digital advice should also include the involvement of humans and the development of hybrid models rather than purely technology driven services.

The definition of digital financial advice is limited and should be expanded to include hybrid options offering a mix of self-service and advice, according to new overview regarding the subject.

The “Digital Financial Advice Market Scan” report, released by AMP and conducted in conjunction with KPMG, asked 16 digital financial advice to provide a definition of what electronic-based advice would look like with the overview noting none landed in the same place as the Quality of Advice Review or the guidance issues by the Australian Securities and Investments Commission (ASIC).

“The Quality of Advice Review (QAR) defines digital financial advice as follows: ‘Also known as ‘robo-advice’ or ‘automated advice’ — the provision of automated financial product advice using algorithms and technology and without the direct involvement of a human adviser,” the overview stated.

ASIC Regulatory Guide RG 255 states digital 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 a comprehensive financial plan.”

The report added: “We asked each provider to give us their definition of ‘digital financial advice’ and without exception, all indicated the definition outlined in the QAR and in ASIC RG 255 is limiting.”

“A common theme among all responses was that digital drives enablement, that delivery could be self-service and also involve a human, including a financial adviser, and there’s most likely to be a combination of self-service and human delivery at some point in time. This is often referred to as a ‘hybrid’ model.”

As a result of the input, the providers the study put forward an expanded definition of digital financial advice.

“Digital financial advice is the technology-enabled delivery of general or personal advice using an algorithm to provide outcomes based on an individual’s answers to various targeted questions. This can be entirely self-directed or involve human interaction, or a combination of both,” they suggested.

The exercise also found 44 per cent of financial advisers today already offer a hybrid or flexible implementation model and there was more opportunity for advisers to use technology to create better engagement and implementation with clients.

Commenting on the findings AMP director of advice Matt Lawler revealed: “We often see digital advice versus face-to-face advice as binary. In reality, clients are likely to move in and out of different forms of advice over time”.

“Practices have the same issues with cost to serve of financial advice as large institutions and superannuation funds, so supporting all players to provide a service that nurtures clients along the advice spectrum is core to how we think about solutions in this space,” Lawler explained.

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