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Robo-advice: Friend or Foe?

The increasingly important role of technology in assisting survival and growth in the industry necessitates more attention than most of us has hitherto given to this aspect.

The one phrase most of us have heard before, and may not always quite understand, is robo-advice, which enjoys some traction in Australia and New Zealand. A recent article in adviser innovation, titled Planners embracing robo-advice, makes the point that advisers in Australia have moved beyond the stage of fearing the new trend.

“New research from Investment Trends shows a majority of financial advisers are optimistic about automated advice services.”

The company’s inaugural Robo-advice Report found that 83 per cent of financial advisers see robo-advice either as being not a threat to their business, or a service which has a place within their practice.

Investment Trends research director, Recep III Peker, says: “Planners see robo-advice assisting across the entire advice delivery spectrum, from the front to the back office.”

More than half of the advisers surveyed by Investment Trends, 53 per cent, saw automated advice services as a tool to enable them to focus on providing strategic advice, with 43 per cent saying robo-advice would benefit their practice by allowing them to service more clients, and 41 per cent citing the lower cost of advice as being beneficial.”

In South Africa, there are three major considerations when it comes to employing robo-advice.

Fair Treatment of Customers

The underlying measure of TCF is the adviser’s ability to demonstrate that the business adheres to the principles which will lead to the desired outcomes. The objectivity of product provider tools such as needs analyses and fund selectors will always be a moot point. Opting for additional, objective technological research will indicate willingness to walk the extra yard to ensure the client receives the correct advice.

Product Supplier Influence

The Retail Distribution Review envisages two types of advisers. The major criteria for distinction between a Product Supplier Agent (PSA) and a Registered Financial Adviser (RFA) is that “…advice provided by RFAs should not be subject to influence by or bias in favour of any products, product suppliers or other third parties, but should be informed solely by identified customer needs.”

Regulatory Impact

The latest feedback on the Retail Distribution Review shows that Robo-advice has also appeared on the radar of the Regulator, with a number of very specific requirements for key individuals and FSPs being introduced.

Importantly, product provider programs purporting to assist with needs analyses do not warrant any such scrutiny, despite the fact that it is sometimes merely a tool to guide an investor to the provider’s own product.

Juanita Moolman, a Partner at Webber Wentzel’s Financial Regulatory Practice recently published an article titled, RDR, FAIS and Robo-advice: An Appropriate Advice Solution?, in which she outlines the raft of proposed requirements and concludes:

“It is questionable whether automated advice could remain a free or cheaper alternative in light of the competence and operational ability requirements proposed in the Determination. These proposals will certainly provide customer protection, but compliance with these requirements will come at a cost to the FSP, especially from a technology and human intervention point of view. As it is, the search for an individual meeting the FAIS requirement to perform the role of a Key Individual can be a challenge. With the additional competence requirements applicable to such a person, the ongoing employment of such a person will certainly come at a cost to the FSP. The proposals around operational ability seem to require a lot of expert human intervention for a tool that is generally perceived to operate without human intervention.”

Making a Mind Shift

A recent article in The Digital Insurer on successful digital transformation notes the following five requirements:

  • Client centricity
  • Business process  optimisation
  • Actionable insight
  • Innovative culture and
  • Information security


Next week we look at this in more detail, and share the views of some experts on the key elements to ensuring successful digital transformation.


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