Skip to main content

The only way to address Australia’s advice gap and meet the challenges raised by the Quality of Advice Review Issues Paper is through greater use of technology in financial advice, says Craig Keary, CEO APAC from Ignition.

“The Quality of Advice Review Issues Paper raises a number of ways to address the issues of the complexity and cost of financial advice.  These include both incremental changes to advice regulation, and the more substantial possibilities arising from technology. 

“The key issue is that incremental measures, which might add 10 per cent to capacity or reduce costs by 10 per cent, will not be anywhere near enough to close the advice gap.

“Other cost initiatives, such as reducing the current regulatory load, are also worthwhile, but is clear that the cost reduction potential of such initiatives will also be incremental in nature: they will not improve accessibility or reduce the cost of advice by 50 per cent or more.

“To deliver that scale of improvement, you need disruptive changes to the supply of advice, which only technology-based initiatives can deliver, and at advice price points which are in-line with consumer expectations and/or the financial capacity of institutions,” he says.

In its submission to Quality of Advice Review Issues Paper, Ignition outlined a number of ways that digital advice, via technology, will play an integral role in the future of financial advice in Australia.

“In the first place, digital fundamentally changes the economics of advice delivery.  Current human advice modes are essentially variable cost models with limited opportunities for economies of scale,” Mr Keary says.

“For example, doubling advice capacity could only be achieved by adding additional resourcing to existing in-person or phone-based advice team, resulting in a substantial increase in costs.

“Digital advice solutions, however, reduce the average cost per piece of advice by changing the cost model from fully variable to a mix of variable and fixed costs. This allows many more customers to be served at the current level of expenditure, and for growth in capacity to occur without costs rising in the same proportion, thereby reducing the cost to serve for each piece of advice.

“Digital advice also allows large financial institutions to efficiently and economically serve new customers who would otherwise be unable to access advice,” he says.

Secondly, Ignition believes that digital advice solves many of the traditional barriers to advice for consumers:

  • Cost is significantly reduced,
  • accessibility is significantly increased, and
  • control of the advice process is firmly in the hands of the consumer, who can access personal advice in their own way at a time that suits them.

“For example, members can log on and deal with their super when they have the time and mind space for it, whether that’s on a Saturday, late at night, or early in the morning,” says Mr Keary.

Crucially, digital advice already swims between regulator flags.

“The regulatory framework does not hinder the provision of digital advice and regulatory changes are not required to enable the adoption of digital advice by Australian institutions,” Mr Keary says.

“Digital advice is a new way to access single issue personal advice and is not a different form of advice in itself.  Institutions can be confident that digital advice swims between the flags, and meets all compliance requirements of traditional advice rules such as best interests duty, and appropriateness test.”

He added that digital advice does not result in any dilution of compliance standards.

“Rather, the automation of data gathering, checking and algorithmic development of recommendations, results in consistent and quality advice outcomes for consumers. Data collection is streamlined and automatically checked for outliers, errors, inconsistencies and conflicts. Nothing can slip through the cracks of digital collection.

“Our experience in the UK and Europe show that hybrid digital advice models are currently the dominant institutional preference. We expect to see the same trajectory in Australia, and the Quality of Advice review is a major opportunity to address the role that digital advice can play in the Australian market,” Mr Keary says.

Read key take-outs from our submission to the Quality of Advice Review Issues Paper here