ASIC continues to develop new strategies and ideas to regulate the growing digital financial advice sector. As part of the development the regulatory body has engaged with Australian Financial Services (AFS) Licensees, their representatives and other interested parties to seek feedback. ASIC invited responses around two topics: how organisational competence obligations apply in a digital advice context and how AFS licensees should monitor and test the algorithms underpinning digital advice.

Ignition Wealth CEO Mark Fordree wrote a detailed response, outlining a number of our concepts which we believe will encourage a dynamic, innovative and most importantly safe digital financial advice industry to develop.

As regards digital competence Ignition Wealth made a number of suggestions. Current regulation requires AFS licensees to keep client records for a minimum of seven years; given the increased data storage capacity of a purely online offering we suggest requiring that digital advisers archive client records indefinitely. We also suggest allowing approval of the algorithms designed by digital advisers by a group of suitable experts which might include actuaries, CFAs and financial mathematic academics.

Ignition Wealth would welcome an ASIC-led move to transparency with baseline acceptable formulae such as those used on the MoneySmart site exposed. We suggest following the example of the UK regulator to create a ‘sandbox’ environment where robo technologists can engage with ASIC’s team to review new products during the development process – a proposal ASIC has since adopted.

We believe that digital advisers should always be required to operate under the ‘best interest’ obligations to their clients, reflecting the fact that the general public assumes that all  advice – whether online or “face to face” – is personal to them and their circumstances.

At present it is almost impossible for consumers to assess the quality of advisers in the market. We suggest creating a rating system that is as simple and clear as other consumer rating systems such as the power efficiency star rating for white goods or the safety ANCAP ratings in the vehicle industry. We also advocate publishing information about adjudicated complaints and their severity, enforceable undertakings with ASIC, client retention rates and a ranking of advisers’ past performance.

Overall we advocate increasing the stringency of the requirements for digital financial advice providers – the greater reach and scale possible with an automated online offering demands greater transparency, independence, testing and competence. We look forward to growing consumer confidence in digital financial advice. This may not happen overnight but with hard work and consistent excellence in service, quality, tools, calculators and advice, the future is bright for digital financial advice.

For more information from ASIC about digital financial advice visit the MoneySmart site here.

To read the report in full, download it here Ignition Wealth’s Response to Consultation Paper 254 (1).