CPD: How can Robo-advice meet Australia’s strict regulatory best interest duty requirements
Originally published in AdviserVoice.

Australia has the one of the strongest regulatory environments in the world. “Operating under the Australian regime automatically provides confidence to investors and consumers. Most importantly ASIC regulates towards consumer-first best practice and we embrace that,” says Ignition Wealth CEO Mark Fordree.

Since July 1, 2013, the best interests duty and related obligations to manage conflicts have become an important part of every financial advice business, recognising that advisers owe fiduciary duties to their clients. Digital advice brings 21st century technology to this age old principle.

Digital financial advice has the capacity to introduce rigour and excellence to the three key requirements of the best interest duty: ensuring that the adviser acts in the client’s best interest, provides advice that is appropriate and prioritises the client’s interest over the adviser’s interest.

Acknowledged as a leading fintech regulatory expert, Claire Wivell Plater is Managing Director of The Fold Legal and a member of Advisory Boards for three Australian fintechs: Red Marker, HashChing and Ignition Wealth. Claire’s industry experience is unrivalled, she is a member of the Federal Treasurer’s FinTech Advisory Group and a long standing member of the Business Advisory Committee to ASIC’s Licensing Division. The Fold Legal is also Honorary Legal Counsel to Fintech Australia.

Claire embraces regulation, believing that she can help businesses to integrate with compliance in a light, elegant manner, focussed on the underpinning requirements for trusted advice – honesty, efficiency and fairness.

Drawing on her extensive experience, Claire believes that far from being adversarial, licensed businesses need to develop collaborative relationships with their regulators, to create outcomes which support the philosophy of regulation and most importantly benefit the consumers they both serve.

Claire is a champion of the fintech industry, with over 35 Australian fintech businesses now advised by The Fold Legal. Fintech businesses are drawn to Claire because she understands the intersection of technology with law and regulation and is exceptionally well networked with people who can help the business. With a strong reputation, Claire has an ability to open the right doors for her clients, and also add gravitas to their brand.

Claire says, “I have always acted for entrepreneurs. I’m drawn to their spirit of innovation and thinking outside the box. I find emerging fintech players to be altruistic; seeking to shake up established players for the benefit of the consumer. And I have always been a connector; I am always thinking who can I introduce to whom. It’s an enormous privilege to be asked to work with businesses I can add that to.”

As a result of her involvement with entrepreneurial businesses, Claire knew that the regulatory knowledge and experience held by The Fold Legal could be of great benefit to the fintech startup community.

Claire says, “I could see business opportunity of course, plus an opportunity to contribute to the innovation boom sweeping Australia. Startups are exciting, often staffed by young, highly intelligent people who are looking to radically change financial services. They’re at the cutting edge of regulation and consumer protection – which is exciting for us as lawyers.”

In her various roles, Claire performs a vital role interpreting the needs, ideas and innovations of the industry , identifying where change could facilitate the fast emerging sector and providing feedback directly to ASIC and to the Federal Treasurer.

Much of the Australian legislation was enacted more than a decade ago. In the past ten years the global business environment has undergone a digital revolution with the vast majority of financial services businesses in Australia now operating in a digital environment, at the bare minimum owning their own website and interacting primarily by email, while some have gone further and are also using social media and omnichannel media to market to and service their customers.

The law and regulatory policy are struggling to keep up. “Some of our regulation is framed in a painfully analogue manner, unsuited to digital dealings. A good example is the expectation that disclosure is a point in time obligation, rather than providing the flexibility to logically locate the required information where it is likely to be seen, based on usage patterns.” Claire cites Financial Services Guides as an examples, “The FSG is a document which is required to provide consumers with a list of information about a business, most of which is on their website. A static FSG is outmoded in an online environment”, she says.

New compliance obligations have recently been layered on top of disclosure requirements that have been proven to be ineffective. But nothing has been taken away. In addition, various regulatory regimes result in multi layered and inconsistent consent requirements – think privacy, AML-CTF and electronic dealings, to name just a few.

Ideally law and policy makers would learn from the digital age – and focus on holistic user experience as well as the cost to business when considering the impact and likely effectiveness of regulation. The financial services industry would benefit from a ‘stocktake’ of the consumer journey to remove unnecessary and ineffective regulatory requirements”, Claire suggests.

Claire states that the policy principles that underpin financial services regulation in Australia are sound. “But all too often, regulation is framed around the activities of a few bad actors. ASIC’s recent commitment to focus more on ‘what good looks like’ is a big cultural change and very welcome.”

ASIC is engaging with the fintech industry in a number of ways including the regulatory sandbox licensing exemption, intended to facilitate innovation, which Claire has been actively involved in shaping. Unlike sandbox options currently operating globally, the Australian model will be opt in, allowing eligible fintechs to start with no delay, allowing a much faster route to market than Hong Kong, the UK or Dubai.

Moving forward into the world of digital financial advice, Claire advocates a blend of digital and traditional advice as the best solution for consumers allowing the robo to automate the administration while the financial adviser brings real value in the role of a financial coach and mentor. For consumers, one of the key challenges will be to know when their advice is suitable and when they need more, better or different advice and without a traditional advice element and human expertise it will be difficult for consumers to know when the tipping points happen.

With a number of digital financial advice businesses operating in the Australian market Claire chose to work with Ignition Wealth following the Afiniation Fintech Showcase in Sydney. Claire was one of the judges on the panel that awarded Ignition Wealth Best Robo Adviser.

Claire was drawn to the team and to the technology. She says, “I was impressed by the level of conviction, the quiet assuredness and the seniority of the people involved. Ignition Wealth has robust technology and methodology while founders Mark Fordree and Mike Giles have a deep understanding of the adviser business from both an adviser and consumer point of view, giving them a good prospect of leading what is already becoming a crowded market.”

In 2015 Ignition Wealth became the first Australian digital financial advice business to obtain their own AFSL and the company continues to lead the way, developing a new financial services paradigm that innovatively addresses the regulatory requirements.

Ignition Wealth sets the benchmark for digital financial advice in Australia. According to Mark Fordree, “Advisers are drawn to the company for three main reasons: the technology is designed to seamlessly intersect with advisers’ existing working practices, the process to adopt the technology is quick and easy and the technology, management, board and investor team are experienced and trusted.”

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