The Financial Markets Authority is consulting on its proposal to offer an exemption to allow personalised roboadvice to be offered under the existing law.

It has been concerned that there is too much time still to wait before the Financial Services Legislation Amendment Bill becomes law and makes roboadvice possible across the board.

But among its proposals is an exclusion, in which the FMA said it could consider limiting the total investment amount of products a roboadvice service could advise on, such as to a maximum of $5 million.

“This may help mitigate the overall risk of harm if a roboadvice service fails," it said.

"However, it may be difficult to set an appropriate total limit given the different size and scale of the roboadvice services and providers who may rely on the exemption. We could consider applying two limits, with a higher limit for entities that are QFEs. This would recognise that these businesses undergo an initial assessment to obtain QFE status and are subject to ongoing supervision by us; and they are required to comply with ongoing QFE obligations and conditions.”

Larissa Vaughan, head of legal at Kiwibank, said that cap was inappropriate. She addressed the Financial Markets Law Conference in Auckland last week.

“With KiwiSaver, most providers are going to have more than $5m. The top six are all in the billions and even the smaller KiwiSaver providers have well over $5m. That would mean that none of those providers can give roboadvice, which is one of the things I understand the FMA wants to achieve through this.”

Vaughan said there were not enough advisers to give the advice KiwiSaver members would need.

She said there was one AFA for every 1500 KiwiSaver members and it would take an adviser three years to service that number of clients.

“We know we have a numbers problem and roboadvice can help with that.”

She said some people were also put off using an adviser by concerns about the cost, or because they found it intimidating.  “Roboadvice does help solve that problem.”

She said the risks could not be ignored and any systems would need to be kept well up-to-date with legal changes that could affect it. There was a risk that the tools could provide advice that was not suitable and might miss the “EQ” factor an adviser could offer. But she said qualitative controls would be more effective than the quantitative limitations the FMA has suggested.

IFA president Michael Dowling said advisers would fit in where products, or clients’ circumstances, were more complex. “That may be where it evolves to.”