Robo-advice – The regulator’s choice?

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One commentator I read, who happens to be a big fan of robo-advice, talked excitedly about how it solves all those messy compliance problems caused by forgetful – or conflicted – humans.

Monday, July 27th 2015, 11:59AM 1 Comment

He did happen to work for a big investment company that is very keen on robo-advice, so perhaps he was writing from close personal experience of both sides of that view. But it is an interesting question: will robo-advice become the ‘regulator’s preferred advice model’?

Well right now, it can’t be – the Financial Advisers Act (FAA) is designed so that only registered natural people can give financial advice (although there is limited scope for a company to have a view about its own products in the form of class advice).

That might change through the current review of the FAA with the possibility of companies giving advice being raised in the consultation document. You can imagine that under such circumstances the worries of whether a compliance step, process, or document was properly completed or provided will come down to a matter of record: data, emails, and so on.

It sounds so wonderfully efficient.

Perhaps financial services companies will have teams of lawyers, analysts, and programmers meet with the Financial Markets Authority and sort it all out around the conference table.

But advisers would probably laugh at such a proposition – and so would many of the consumer advocates that work with people who use financial products.

They know something else – the human dimension that explains why, as something gets more complicated (and financial services never seems to get simpler, not matter how much we talk about it) people want more advice, support and guidance than they ever did in the past.

Take the ability to read, just as one obstacle. I’ve done some investigation of this ability for the readability assessments we make on policy documents. One of the tests for reading capability is whether people can accurately follow the instructions on prescribed medication.

A crucial skill that, you would think, almost every adult possesses. In fact a large minority of New Zealanders cannot do this accurately indicates that there are lots of people that would struggle to navigate through robo-advice systems. At least, until they get a lot better.

Even if they understood them they might want re-assurance. We think it is empathy that is required.

Empathy, reassurance, understanding, the ability to deal with non-standard inputs: clients that speak English as a second language, and many other factors that will keep humans in the business of giving financial advice for a long time. Probably in happy partnership with a growing army of robot applications to make it a lot more efficient, but definitely together.
 

Tags: Russell Hutchinson

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