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14 Sep 2022 - Cracking the code on digital advice
By: abrdn

Cracking the code on digital advice

abrdn

August 2022


The financial advice industry has long touted the inevitability of digital solutions to close the financial advice gap in Australia, but there has been little progress to date.

Industry players are reluctant to dive in thanks to red tape and complex rules, while a lack of regulatory support is stifling overseas investment and the local fintech community.

But with the recent change in Australia's federal government and with the Treasury's Quality of Advice review into the affordability and accessibility of quality advice underway, the industry has a unique opportunity to call for the changes needed to bring digital solutions to the fore.

In our view, now is the time to bring fresh thinking and establish an environment to promote robust digital advice solutions that enhance the lives of Australians and reduce anxiety around retirement planning.

Glitches in the current model

Advisers have been leaving the industry en masse due to the increased burden of ongoing accreditation and regulatory compliance costs in the wake of the Hayne Royal Commission.

More than 3,000 advisers (16% of the market) left the industry in 2021, with a further 2,387 advisers predicted to leave in 2022. 1 This has also put upward pressure on the cost of advice. The median ongoing fee for advice rose to $3,256 a year in 2021 - an increase of 41% since 2018 - pricing out most Australians who say they want advice.2

Industry players widely accept that digital solutions can solve this problem by achieving a wider reach at a lower price point. But no company has successfully solved the challenge of providing digital financial advice in Australia, even though proven technology exists overseas.

"No company has solved the challenge of providing digital financial advice in Australia, even though proven technology exists."

Advice groups and investors are reluctant to launch digital financial advice in Australia because the rules are not clear. The risk either of losing their licence or of facing financial recourse from the regulator is seen as too great.

Under the current model, the Australian Securities and Investment Commission (ASIC) is set up to be a code and conduct enforcer as opposed to helping firms to get their solutions over the line in a compliant manner.

Unless this changes, overseas companies with existing solutions looking to expand their footprint to other markets, as well as local fintechs and established financial institutions, will be hesitant to do so here in Australia.

Sparking innovation through collaboration

Other government jurisdictions have taken a proactive approach to support financial services companies in developing innovative digital advice solutions and bringing them to market in a compliant way.

The Monetary Authority of Singapore, for example, works directly with the financial sector to accelerate technology adoption. It launched the Fintech Regulatory Sandbox in 2016 to empower companies to experiment with digital solutions by relaxing legal and regulatory requirements for a limited period.

Similarly, the UK's Financial Conduct Authority created Innovation Pathways to help financial services firms launch innovative products. It provides clear guidance on rules and offers one-to-one discussions with a dedicated case manager.

We believe Australia's advice industry would see more early innovation if ASIC had a similar mandate. In our view, increasing ASIC's responsibility to help launch new digital initiatives by taking a more hands-on approach would not only accelerate innovation, but also attract more investment from companies in markets with well-established digital advice solutions.

In developing the digital advice journeys, there should be an opportunity for regulators to help shape the solution, agree on the objectives and test the solution with clients in the marketplace to ensure intended outcomes can be met.

Proven technologies can fast-track digital advice

The good news is that proven digital solutions could be fast-tracked for the Australian market if the regulatory environment were to change. For example, digital advice journeys have been tried and tested by tens of thousands of abrdn's UK clients and have helped to close the financial advice gap in the UK. These could be adapted quickly for Australia's market.

Dubbed bionic advice, abrdn's UK offering provides a hybrid between digital automation and the services of a human adviser. Clients digitise key information about their goals, lifestyle and other data inputs - freeing up paraplanning time and driving down the cost of advice.

One of abrdn's UK digital journeys, for example, provides guidance to clients approaching retirement. Clients enter their data into digital tools to estimate their retirement income and model various scenarios. At this point, clients can choose to engage an adviser to finish off their retirement advice plan based on the digital inputs they've already provided.

The innovation breakthroughs in bionic advice are where we see a much lower price point to access advice and reduce the advice gap. Advisers can then focus entirely on the value-add part of the journey, providing genuinely helpful advice.

Author: Jason Nyilas, Head Of Retirement and Digital Innovation, Australia


Funds operated by this manager:

Aberdeen Standard Actively Hedged International Equities FundAberdeen Standard Asian Opportunities FundAberdeen Standard Australian Small Companies FundAberdeen Standard Emerging Opportunities FundAberdeen Standard Ex-20 Australian Equities Fund (Class A)Aberdeen Standard Focused Sustainable Australian Equity FundAberdeen Standard Fully Hedged International Equities FundAberdeen Standard Global Absolute Return Strategies FundAberdeen Standard Global Corporate Bond FundAberdeen Standard International Equity Fund Aberdeen Standard Life Absolute Return Global Bond Strategies FundAberdeen Standard Multi Asset Real Return FundAberdeen Standard Multi-Asset Income Fund


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