ASIC recently released guidance on the regulations regarding the provision of digital advice to retail clients.
Digital advice has unique properties which are discussed in RG 255, specifically competence obligations and the monitoring and testing of algorithms that decide people's theoretical futures.
Anyone offering or intending to offer digital financial advice needs to be aware of best practice and regulations in this space.
Definition of digital advice
Digital advice is colloquially known as 'robo-advice', for when the robots take over 80s-style, but it also comes under the umbrella of automated advice. Digital advice uses algorithms and technology without direct involvement from a human financial adviser, for personalised or general advice. This could be narrow in scope, or more comprehensive.
Digital advice in Australia
Digital advice is already taking off in Australia with start-ups and existing licensees participating. Growth is expected to continue.
ASIC loves the idea
ASIC supports a healthy and robust digital advice market, with innovation at its core. With just 20 per cent of adult Australians seeking financial advice, there is plenty of room for improvement, with digital advice offering attractive, simple, and low-cost alternatives. More people seeking financial advice means better financial literacy, and that means improved financial outcomes for more Australians.
What the guidelines spell out
Every digital provider of financial advice must be licensed in the usual fashion. General obligations must be met, including with new frameworks for digital advice.
- The company must have adequate financial, technological and human resources to provide the financial services that they are permitted to provide in their AFS licence.
- There must be adequate risk management systems in place.
- Adequate compensation arrangements must be in place for financial services provided to retail clients.
- Scaling needs to be made clear.