Blog: Replace broken financial adviser model with robots: CBA whistleblower – The Australian Financial Review

The median fee for financial advice rose by 16 per cent last year to $3256 per client, according to researcher Adviser Ratings. KPMG estimates the average cost to provide that advice is $5335 – making it effectively a loss-making enterprise amid a mountain of legal disclosure and paperwork requirements.

But Mr Morris rejected calls to boost access to financial advice by relaxing the regulatory burden on his former peers in the financial planning industry. Instead, he said ASIC should be focused on supporting efforts to provide advice to regular consumers via software.

‘Scope for human greed’

While he acknowledged that the financial advice industry has upskilled in recent years, thanks to the Morrison government’s controversial mandatory education reforms and code of ethics, he said consumers would be better off trusting a so-called robo-adviser.

“The trouble is there is still the scope for human greed,” Mr Morris said. “I’ve seen people give very dangerous off-the-cuff advice.

“The beauty of robo-advice is you can program all sorts of safeguards into it. For the vast majority of people that would be the way to cover the vast majority of their needs.”

Such a proposal was this week put forward by UNSW law professor Pamela Hanrahan, a former ASIC commissioner. Dr Hanrahan, together with David Bell, executive director of think-tank the Conexus Institute, have developed a “standardised” tool that collects personal data about workers approaching retirement and makes automated recommendations to buy products such as an annuity or account-based pension.

Page One of Tuesday’s Financial Review.  

It would make “assumptions” about their personal preferences based on the financial data and permit super funds, banks and insurers to implement the the advice. That would require ministerial or regulatory approval – if not changes to the law by Parliament – since the Corporations Act decrees that only licensed financial advisers can recommend financial products.

However, Ben Marshan, head of policy at the Financial Planning Association, said many retirees would prefer to trust a human professional over algorithmic software that may not take their full circumstances into account.

“The robo-advice model is not particularly successful,” he said. “Stopping work is the most critical time in someone’s financial life. Are they really going to trust a robot?”

Wealth management companies such as AMP and IOOF have expressed a desire to launch cost-effective digital advice products to the market, but many in the financial services industry have been afraid to experiment with limited issue advice, telling an ASIC inquiry they had “compliance concerns”.

The collapse of local digital advice pioneer Plenty Plus in 2019 spooked the industry further, after its founder said it was not viable to operate within the regulatory framework.

ASIC chairman Joe Longo told the Summit on Monday that the laws governing financial advice were “too complex” and has previously vowed to improve access to digital forms of financial advice.

The government will next year hold a review of the quality and affordability of financial advice, while the Australian Law Reform Commission is considering calls to simplify the laws governing advice.

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