Creating a culture that places clients’ interests at the forefront of everything the business does is the frontline defence of the firm’s professionalism, and will not change even in the face of the the rise of digitally enabled or robo-advice services
June Smith, lead ombudsman, investment and advice, for the Financial Ombudsman Service (FOS), says how a firm handles and resolves disputes, and how it identifies and listens to concerns raised by clients, “says more about the culture within your business than anything else”.
Smith says FOS has about 13,500 members, and in the past year received about 34,000 disputes. Of those, 1114 related to her area of investments and advice.
“So it’s just about 5 per cent of the disputes we see,” she says.
Establishing strong processes “in terms of culture within your businesses [can help] make sure that you can reduce the risk of these types of issues happening for you,” she says.
A strong client-focused and professional culture will be critical to help businesses adapt to changes coming to financial planning.
“This week alone in financial planning has been an incredible one,” Smith says.
“You’ve got yesterday’s fantastic announcement about the opt-in code and the FPA’s success there. And we’ve got the professional standards regime which was introduced into parliament as well.”
Businesses need to be ready “not only for the existing practice that you’ve got” but also for developments in digitally-enabled advice.
“Everyone talks about robo and digital as if there’s no-one else in the building,” Smith says.
“It’s like somebody let off a little bomb and all the people died, and they just left the machines in charge. And to an extent I understand – having built three algorithms in a PhD – that algorithms are fantastic.
“But what we’ve got to remember about digital advice is that it’s still a human experience. There’s still a client, first and foremost. There’s still a service deliverer and company. Your culture won’t change in terms of your expectation for you advice services or your relationship with your client just because you have technology and algorithms that are assisting you to provide that service.”
Smith says businesses will still have to audit and monitor an algorithm to ensure it’s delivering appropriate advice.
“And at the moment the guidance from ASIC on that includes having not only a responsible manager who is also qualified as a financial adviser, but also whoever is auditing the advice has to be appropriately qualified as well,” she says.
“And we’ve said that we would support digital advice groups – whether they are financial advice practices or otherwise – signing up to the single code of ethics and the professional standards framework as well. We think all of those responsibilities and obligations should apply to digital advice as well.”
Smith says that FOS recognises, from a dispute resolution perspective, that things will change.
“We’re likely to go from a situation where we handle an individual dispute from one applicant against an FSP [financial services provider] to a remediation-style framework, which is what we’ve seen probably more than ever before over the past year,” she says.
“If it goes wrong in a digital advice framework, it won’t go wrong for just one client – it will go wrong for many. So there are a lot of fabulous benefits for clients in relation to digital advice – we think it will give access to quality services to more Australians than ever. That said, we think there are some risks and some changes that will come as a result of that, and one of them is if it goes wrong, get set to do remediation programs across a number of clients rather than just one.”
Ewen McKay, product leader, management liability, for underwriter XL Catlin says if a financial planning business wants to offer a digitally-enabled advice service, one of the first groups it should inform is its professional indemnity adviser.
“The other thing is – because if it affects one client it’s likely to affect many – what that means for our insurance is you really have to look at how much insurance you’re buying,” he says.
Because losses can arise for multiple clients from effectively the same source, insurers will seek to aggregate those claims.
“They will view it then as a single claim, as far as your policy is concerned,” she says.
“The good thing is that in most policies that means there’s only one excess payable, but the other thing is it will eat though your limit very, very quickly. So your requirement under RG126 to have adequate limits on your PI policy, if you’re doing more robo-advice, digital advice, you need to really look at that and look at what is the potential downside of something goes wrong, and how many people it’s going to affect.”
