Robo: Get behind, or get left behind

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A Financial Markets Authority proposal to clear the way for roboadvice earlier than expected has been given a tick of approval by experts.

Friday, June 23rd 2017, 6:00AM 1 Comment

by Susan Edmunds

The FMA is consulting on whether it should offer a class exemption for roboadvice, to allow providers to begin offering it before 2019, when reforms would otherwise have made it possible.

“I think the proposal is well considered and will keep both incumbents and new entrants to the market happy,” said Geoff Ward-Marshall, a senior associate at DLA Piper who has been a vocal commentator on roboadvice issues.

“The proposed conditions are very similar to those that we have seen imposed by regulators in other jurisdictions, such as Australia, and that our offices in those jurisdictions have been advising on for some time. We don’t expect there to be too much objection to the conditions and they should have been anticipated by those that have been actively preparing to provide automated advice.”

The proposals include a number of restrictions: It is expected that the exemption will only apply to products that are considered easy to exit, such as KiwiSaver, managed funds, general insurance, and government bonds.
There will also be safeguards required to filter out clients who were not suitable to receive roboadvice.

Ward-Marshall said it would be those restrictions that attracted the most comment but they did not seem unusual.

“The exemption conditions reflect the developing regulatory approach overseas and are largely what we expected," he said.

"They're also a nod to what we can expect from the licensing regime that will apply when the FAA is reformed. The focus is on ensuring that clients have all the information they need to make an informed decision and that the adviser puts the client's interests first - all of which is very sensible. The conditions requiring processes for filtering out unsuitable clients and having appropriate human resources to monitor and test both the technology and the advice are all very similar to the current Australian requirements,” he said.

“While it isn't planning to do so at the moment, the FMA has said that it could look at imposing an individual client investment limit - $100,000 has been suggested -  to ensure that human advice is given for larger portfolios - I don't think this is needed as the processes for filtering out unsuitable clients should deal with this. 

"The FMA could also consider limiting the total amount of investments that a service can advise on to safeguard against a provider's failure - again I don't think this is needed as requirements to protect client money and client property already exist.”

Bradley Kidd, of Chapman Tripp, said US providers had quickly achieved significant scale. It was likely providers in New Zealand would hope to follow suit.

“As always, the devil will be in the detail and the product and investment amount limits the FMA has proposed will no doubt receive a lot of attention.  Depending on where they land, the proposed conditions will also be key factors in a decision to launch a platform – as inevitably the expense of implementing and maintaining a platform will be a key factor in any business case.”

Binu Paul, of Savvy Kiwi, said advisers should make the most of the opportunity.

“This is a fantastic opportunity to shape the future of the industry in NZ. So I really hope the industry responds to this opportunity. I really see only two options for industry stakeholders. Option one - Get behind it. Option two - get left behind."

Tags: roboadvice

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