The industry needs a more consistent approach to compliant advice documentation so that regtech providers can create effective, scalable solutions, according to Red Marker director Matt Symons.
Symons says that for software company Red Marker – which uses natural language processing to review advice documents against regulatory and internal requirements – coming up with solutions is difficult because they aren’t dealing with “stable inputs or stable problems”.
Symons compares financial planning to the medical industry to illustrate how artificial intelligence tools work much better when the underlying problems are uniform.
“In health and in diagnostics you get a stable problem,” he explains. “You’re looking for a broken bone or an identifier for a disease. So, the training dataset to improve the performance of the intelligence being used is fairly consistent – you’ve got x-rays of a broken leg or something.”
In advice, however, licensees and advisers tend to form their own interpretation of what regulatory guidelines, such as the Corporations Act, really mean.
Advisers aren’t to blame, he says. They’re caught between regulatory constraints and the need to create financial documents that are attractive and unique enough to engage their clients.
“The industry has to try to do two things at once, which we absolutely understand and have a great sympathy for,” Symons says. “On the one hand it’s got either changing regulation or changing expectations about what existing regulation requires. On the other hand, it’s trying to create more engaging, pithy and cut-through ways of communicating with clients.”
The problem with such a variety in these documents – primarily statements of advice – is that they limit the ability of artificial intelligence tools to help. According to Brian Knight, chief executive at education provider Kaplan, which acquired Red Marker in 2017, this means “you’re not going to get enough consistency for technology to play the role it potentially can”.
“We’ve been on this journey to automate SoAs, but it gets more complex the more we delve into the different SoAs and approved product lists, which means the ability of technology to improve things is limited,” Knight says. “If that happens, then you’re back to a manual checking process which is going to be cost prohibitive and the industry is going to struggle”.
Symons thinks collaboration, not tighter regulation, is the answer to greater consistency in documentation.
“We don’t think the answer is for regulators to step in and be more prescriptive,” Symons says. “But we do think creating a forum where we can start to agree on at least some of the categories of governance and inputs and outputs is going to materially advance our ability to create common tools and data-sets that help advisers.”
