Robo advisers must reach beyond ASIC’s low minimum standards

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Paul Resnik

Australian robo advisers must reach beyond the limited scope of recently published ASIC RG255 guidance on digital advice.

Regulatory Guide 255 about providing digital financial advice leaves many questions about the integrity of robo algorithms and investment standards unanswered. However, these are critical questions that every digital advice operator must address.

“ASIC’s regulatory guide is clearly not meant to be a comprehensive operating manual for robos” said Paul Resnik, from FinaMetrica. “It does not address in any useful detail many of the important issues about standards for robo-advice, such as knowing your client and investment suitability.”

“FinaMetrica powers risk tolerance assessment tools, in human, cyborg and robo channels around the world to ensure our customers have an accurate risk profile of the client and a risk-matched investment solution. But ASIC is not dealing with those types of issues in RG255 – it is primarily clarifying some important licensing questions and establishing very basic, minimum operational standards.”

“The operational standards appear quite low. For instance, to meet RG255 a robo firm only requires one person who understands the robo algorithm and one person who can review the advice – and they can even be the same person. Our guess is this will assist foreign and entrepreneurial robos to develop a presence in Australia without initially requiring a large local staff.”

“Hopefully Robo operators will reach beyond the bare minimums in RG255, because all the rules that apply to human advice apply equally to robo advice” said Paul Resnik. “Investment decision standards are barely discussed, yet they are at the heart of a good financial advice process and are at the heart of every robo.”

“Robo operators need to give good advice, supported by robust defensible algorithms – it’s not just about access and transaction speed. A failure in automated advice would undermine confidence and could deliver investor losses that easily dwarf the recent scandals over mis-selling by human advisors.”

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