Interest in digital advice is at its peak, but whether that results in further take-up by customers is not yet evident according to research from AMP and KPMG.
The ‘Digital Financial Advice Market Scan’ report seeks to help the development of digital advice technology and also provides a landscape of the different providers.
“The interest in [digital] engagement and financial advice solutions in Australia appears to be at a peak, from superannuation funds through to financial institutions such as insurers, banks, asset managers, platform providers and financial planning firms,” the report said.
“Whether the interest results in successful uptake of digital financial advice solutions by enterprises, and in turn, customers, is not yet evident.”
The research found customers will embrace digital financial advice in the same way that they have “embraced online shopping and online banking”.
“Customers are increasingly buying financial services online, as evidenced through Covid, with 29 per cent of Australians seeking financial advice,” the report said.
“People will access help when they need it most. Data analytics should be deployed to identify customer needs, timing, and context to optimise success, and provide customers with options as to how they might solve their particular financial concern.”
The report referred to previous KPMG research conducted in partnership with the Financial Services Council which found consumers believed financial advice should cost under $340. It said digital advice can help serve mass market clients that don’t have the need or means to pay for comprehensive, holistic advice.
“Introducing digital financial advice will reduce the cost, and improve financial capability, but it is not the ‘silver bullet’ that will solve all financial literacy issues,” the report said. “This needs to be part of a broader engagement and marketing strategy.”
The report found 44 per cent of current financial advisers offer a “hybrid or flexible implementation model” for digital advice.
Additionally, advice firms had the potential to work with digital advice producers for “seamless service across all parts of the financial advice value chain”.
“For financial advice firms the challenge is that they don’t want a two-tiered advice system that disadvantages comprehensive advice, but they also have clients that they find hard to service,” the report said.
Regulatory fears
The report noted reticence from organisations to use digital advice due to regulatory anxiety exacerbated by the Hayne Royal Commission, but the Quality of Advice Review has been a catalyst in the opposite direction.
“Enterprises had initially slowed down their engagement with digital advice providers, but the QAR, declining adviser numbers and an increasing number of previously advised customers have combined to prompt a more recent flurry of activity,” the report said.
“Risk management and risk aversion from superannuation trustees and management is still prevalent, having witnessed or been involved in the royal commission.”
As a solution, the report suggested better promotion of ASIC’s Innovation Hub FinTech program to support businesses aiming to gain an AFSL, as well as better further support from regulators.
“For Government and regulators, the challenge is that neither wants to be seen to be taking a ‘backwards’ step in terms of regulation, while acknowledging that progress must be made,” the report said.
The survey asked digital advice providers to define “digital financial advice”, and all stated the outline in the QAR and ASIC Regulatory Guide 255 was limiting scope and innovation.
Based on industry feedback, the report suggested changing the definition of digital financial advice to describe it as: “the technology-enabled delivery of general or personal advice using an algorithm to provide outcomes based on an individual’s answers to various targeted questions. This can be entirely self-directed or involve human interaction, or a combination of both.”
It’s a pivotal time for the advice industry.
Digital advice is not binary. Clients move in and out of different forms of advice over time. Digital advice is as much an offer for an advisory practice as it is direct to consumer offering from superannuation funds. Indeed, practices share the same cost to serve issues as large institutions and superannuation funds. Digital advice provides a service for all players to “nurture” clients along the advice spectrum. We are on this journey with the rest of the financial services sector and fintechs.