Roboadvice an opportunity, not a threat
The FMA has announced that it has decided to grant an exemption, under the current financial advice regime, to enable advisers to offer personalised roboadvice.
This will allow roboadvice to be offered in New Zealand ahead of the introduction of new financial advice laws that will clear the way – but not until 2019.
Further, the FMA will not proceed with proposed financial limits on products that can be offered via roboadvice and plans to expand the roboadvice exemption to include mortgage products.
An FMA spokesperson said the extension of the eligible products list to cover mortgage products is because it meets their objectives of increasing consumer access to advice and promoting innovation.
“Our decision also reflects that, under current laws, mortgage advice can be offered by registered financial advisers, who are subject to a lower level of regulatory oversight than an authorised financial adviser.
“Robo-advice offerings will be aligned to authorised financial adviser standards, so will be subject to a higher level of regulatory scrutiny than those who are currently allowed to offer financial advice on mortgages.”
He said that potential providers will need to apply to the FMA to rely on the exemption with information about how they have the capability and competence to provide their proposed roboadvice service.
Also, the exemption will have conditions in place to help address the risks and provide consumer protection safeguards.
This development might seem to pose a threat to the established mortgage advice sector, but advisers that TMM Online spoke to weren’t looking at roboadvice in that way.
Loan Market’s Bruce Patten said there will be people who use roboadvice and people who don’t, but it will probably be most appealing to millennials who prefer to do most things online.
“We were not expecting that it would be something that wouldn’t come along. So we’ll just take it in our stride and go with it. But we don’t view it as a threat.”
Some people might go for robo-advice, just as some people go for online food shopping, he said.
“But online food shopping doesn’t mean the supermarkets are not full of people. They are. And it will be the same in the mortgage space.
“There will be people who go for robo-advice but there will be plenty who would rather talk to a person instead.”
Patten said there are potential opportunities that would come off the back of roboadvice.
“Look at insurance – there are lots of products provided online and lots of people go through them but not everyone gets to the end of the process through them. There’s quite a big drop off rate.
“That might create an opportunity for advisers who get alongside a robo-provider. They could follow up the deal drop offs, find out why they stopped and work alongside them from that point.”
For Go2Guy’s Campbell Hastie, roboadvice might be a bit of a disrupter and a bit of a threat – but it is good to shake up the industry a bit.
“Look at Xero and how that has impacted on accountants. Xero has taken away some of the bread and butter work, the compliance stuff, from accountants and instead they have had to move into a more business advisory sort of role.
“I view robo-advice for mortgages in much the same way. The banks and advisers will have to adapt and maybe diversify their services accordingly.”
However, at the end of the day, a property purchase or sale is a high value transaction and, overwhelmingly, clients look to “in the eye” credibility, he said.
“They want to know that the deal is okay and they have covered all the bases, to be reassured, and to get confirmation that they have made the right decision. And that can’t get that from a robo-adviser, they need a person.”
He also said that roboadvice does open up opportunities to advisers as it could function as a great marketing tool.
According to the FMA, overseas experience indicated that roboadvice would be used by people who were not otherwise getting financial advice, not by those who would have otherwise been clients of human advisers.
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