Jacqui Henderson

Understanding some of the basic principles of behavioural science can help financial advisers to design better “advice experiences” for their clients. An experience that’s centred around a client’s goal achievement, according to a new white paper from Advice Intelligence (a.i.).

a.i.’s online goals-based advice (GBA) white paper aims to highlight the importance and benefits of providing goals-based advice.

“Goals are emotionally motivated, they are tangible and meaningful to clients. More so than outperforming markets by a percentage,” a.i. Founder & CEO Jacqui Henderson said.

“Financial planning, by definition, is a goals-based conversation, yet there is much room for improvement in the way the “old world” advice process has been designed.”

Goals-based technology can provide a clear link between the client’s goals, and how various advice strategies or investments can help improve their chances of achieving them.

“How many advisers can put a number as to how many goals they helped their clients to achieve? In the “old world” I’d say not many. In the “new world” advisers can say exactly. With goals front and centre, clients are constantly reminded of the ‘why’ that’s driving them, giving them a greater sense of control over their future,” Henderson said.

“According to our research, 70 per cent of Australians don’t know what their own life goals are, 25 per cent do, however only 5 per cent have them written down. This represents an exciting opportunity for advisers to help their clients to articulate these goals and set out a clear plan as to how they’re going to achieve them.”

The white paper details how behaviour influences the way a consumer receives and acts on financial advice, identifying that:

• Emotional response drives human behavior. Significant Emotional Events (SEE) can dictate a persons relationship with money and how they make financial decisions.
• The brain is wired to ‘seek rewards’ and ‘avoid pain’ or discomfort.
• ‘Avoiding pain’ or discomfort works as a ‘de-motivator’, clients to return to the known, comfortable behaviour and thought patterns.
• ‘Seeking rewards’ acts as a ‘pro-motivator’, driving clients to pursue positive feelings of reward and goal achievement.
• Setting a clear mental picture of goals (see, hear or feel), means the ability to achieve them becomes more successful. The more abstract the goal, the less likely it will be achieved.
• People empowered in their financial lives experience more joy, satisfaction and pride. Those disempowered are, overall, less happy.

In addition, a.i. has also launched their Goals Based Advice Podcast which brings insights and advice from industry experts. The first podcast of season 1 is available via the a.i. website and features Peita Diamantidis, co-founder of Caboodle Financial Services.

The podcast series will feature as part of a larger Goals Based Advice Academy (GBAA) that will launch soon. It is a platform for advisers to evolve their services and make better use of goals-based advice.

“While we understand that goals-based advice is by no means a new phenomenon, the unique technology means GBA can now be delivered, measured and positioned to deliver a far greater advice experience to consumers,” Ms Henderson said.

The post Understanding emotions key to successful advice appeared first on AdviserVoice.

Jacqui Henderson

Advice Intelligence (a.i.) has launched Version 1.0 of it’s software platform to financial advisers across Australia. This launch marks the start of a ‘new world’ financial planning movement that will be crucial for the future success of the advice industry.

The new technology enables advisers and their clients to co-create the advice journey together. The platform is informed by the financial goals, needs, concerns and behavioural habits of the client. Additionally, the software delivers efficiency and compliance benefits for advisers as they face a dramatically changing regulatory landscape.

Commenting on the launch, a.i. Founder and Chief Executive Jacqui Henderson said the software aimed to transform the advice experience by guiding advisers in the transition from an ‘old world’ to a ‘new world’ model of advice.

“Globally, regulators are working to ensure clients receive quality financial advice. The existing compliance and technology elements of the financial advice chain are inefficient and ineffective. Until now, this has adversely affected the value and in some cases, the consistency of advice delivered to consumers.” Henderson said.

“a.i.’s software will enable advisers to increase their ability to scale, meet prospective clients and satisfy best interest guidelines. It will help advisers to nurture customer relationships and ultimately lower the advisers’ costs in delivering quality, goals-based financial advice.”

The software tracks client goals, cashflow and insurance with each client receiving an instantly -produced, online statement of advice. Paraplanning is removed from the advice process. With the release of Version 1.0, investment and super advice modules will follow in the near future.

a.i.’s “WealthMap” feature provides advisers and their clients with a shared space to co-create advice in an interactive way. This will free advisers to test future scenarios and simulate combinations of advice strategies.

Clients can also track their personal financial plan through their own “WealthApp”.

“This client-facing experience enables advisers to actively demonstrate to clients that their individual goals are at the heart of the advice process. By refocusing the outcome on client goals rather than financial products, any friction that exists is removed.” Henderson said.

“Our aim is to empower financial planners with the software of the future and support the industry in its’ transition to an efficient, respected profession.”

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Jacqui Henderson

For the financial planning industry to evolve and rebuild trust with the consumer, it must first listen to what consumers want and then deconstruct the barriers that daunt the consumer in their advice journey, according to Advice Intelligence (a.i.).

“Our aim is to transform financial advice into a language that a consumer speaks and a dynamic, interactive experience they feel they have co-created,” a.i founder and chief executive Jacqui Henderson said.

“The purpose of financial advice is to improve clients’ lives and excite them about their future, but the end result of the current financial planning process often doesn’t. The traditional statement of advice has failed to adequately engage consumers and bring their financial plan and overall goals and aspirations to life.”

The fintech firm has recently changed its name from Adviser Intelligence to Advice Intelligence to better reflect its core philosophy – that financial wellbeing through quality advice is one of the most powerful things a person can experience.

“In times of public scrutiny and regulatory change, it’s important for the financial planning industry to reflect on how we can build two-way trust with consumers by delivering advice in a smarter and more appealing way,” Henderson said.

“With the guidance of a trusted adviser, people can better understand their financial position, see new possibilities and ultimately achieve their life goals – but only if the industry can work together to evolve financial advice into an experience that consumers want to pursue and feel supported in being a part of.

The a.i. objective is to transform the advice experience and guide advisers in the transition from old world to a new world advice model. By using technology to engage with consumers, it is possible to consistently create smarter, dynamic advice that is directly tied to consumers’ individual life goals.

“By providing advisers with the best tools via an intuitive online platform, we believe a.i. can help to make financial advice a more collaborative experience that consumers feel part of,” Henderson said.

“In the words of Henry Ford, “we don’t just need a faster horse”.  We need to reimagine a future for financial advice that is much more evolved and in tune with what consumers expect and demand.”

With this in mind, a.i. hosted a panel discussion in Sydney today with several of the financial planning industry’s leading advocates for technology-enabled goals based advice, to discuss how the financial advice and planning process can best evolve to become more meaningful to the next generation of clients.

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Quality financial advice should be a cornerstone in the life of every person.

The equality theme is highly topical in our society today.

Australians will soon learn the outcome of a postal vote on same sex marriage. Leaving out the politics, the ‘postal plebiscite’ is essentially a heightened version of another long-term, slow-burn societal discussion we need to have.

By this I mean the debate around financial equality between Australians of different gender.

One of the motivating factors behind our firm is the empowerment of all people irrespective of gender or sexual preference, to make better decisions – ideally with a financial adviser – about their money.

Quality financial advice should be a cornerstone in the life of every person. But women, given the inequitable social and economic dynamics at play, need in my view to work harder, sooner on the path to financial security and lifestyle choice.

Women would ideally be in a position where they can fund not only their own retirement, but their own lives should they need to live independently.

Women need to be prepared for life’s events. This may include maintaining earning capacity while raising children. This is where accessing maternity leave is so important. And good lower cost childcare. And equal opportunity employment. Employers need to improve parental leave schemes, the concept of paternity leave, rather than the concept of maternity leave, shared leave for raising children.

Other important elements on my wish list?

• More flexible superannuation arrangements within the accumulation phase, where women typically have interrupted work patterns
• More involvement by women in the family finances – breaking down some of the cultural or societal ‘norms’ that may dictate the male as the dominant partner
• Behavioural change within organisations to develop positive models for affirmative action based on gender
• Mentoring and supporting women in their professional development into executive roles

Why? Because it’s a fact in our society that a major imbalance is at play. Men typically hold more wealth than women – a lot more wealth. Male wages are higher, as are bank account balances and superannuation accounts.

Much of this is due to entrenched inequality in many areas, including rates of pay, job promotions and career choices. Women typically have interrupted working lives, and often struggle to make up the gap when care duties diminish and they return to work.

People employed in high-paying roles such as company directors, chief executives, surgeons, and judges are often men. More than men, women move into low-paying jobs such as nursing, cleaning and caring for the young and elderly.

Even in traditionally heavily unionised occupations where women have a voice, their salaries are lower than those of men. Take school teachers, for example. The average weekly earnings for a male high school teacher was $1,628 in May 2016, compared to just $1,487 for females, according to data from the Australian Bureau of Statistics.

For primary school teachers, who are mostly women, the average weekly earnings were $1,273 for females, compared to $1,581 for males. That’s a $308 difference a week in a male teacher’s favour or over $1,300 a month. Over a life time, that adds up to a huge inequality of earnings.

In white collar occupations where there is a near equal representation of men and women, yet significant wage inequity exists. For solicitors, average weekly earnings for men were $2,007 in May 2016, compared to $1,814 for women. That’s almost $200 less, a greater discrepancy than for the $141 difference for primary school teachers.

According to the National Centre for Social and Economic Modelling (NATSEM), even when women and men appear to be relatively equal according to some measurements, there are other dimensions of economic inequality. For example, while the wealth levels of those working in high-status occupations are not dissimilar on average, there are many fewer women within high-status occupations, such as surgeons or judges.

Such discrepancies often translate into relative poverty for women during retirement, as well as increased reliance on government support and pensions, according to NATSEM.

Advice is the key – both career and financial

So – what do women need to try remedy some of these inequalities? Good career advice is essential. As is financial advice. And that advice should be accepted from a young age, before social norms take over and women move into the lowest paying jobs.

Good financial advice is essential. Often this can be at the most basic level. For example, educating women on how to set financial goals and putting aside a portion of their wages each week to save money. How to salary sacrifice. How to take advantage of the government’s superannuation co-contribution. How to claim Centrelink payments.

Women can take steps to empower themselves through knowledge. And financial advisers have the skills and information to help women boost their financial independence and wealth.

Our firm is doing its bit to help empower Australians, but women especially, with the tools, education, and knowledge to make better financial decisions in concert with an adviser and take charge of their own finances as effectively as possible.

We aim to help bridge the gap between men’s and women’s wealth levels.

a.i seeks to bring financial advice to more people, in an approachable way. Designed to be used on all web-based devices, a.i. is a toolkit that works wherever you do, delivering a simple, and user-friendly experience.

By Jacqui Henderson, Founder & CEO

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Jacqui Henderson

An all-pervasive feature of modern life is the speed of technological change, and of our collective capacity to adapt to the multiple impacts of change. It is natural to question the benefits: does the constant challenge to keep up and adapt simplify my life or make it ever more complex?

Would a fully-automated advice capability drive better service standards and outcomes for my advice business and my clients, or does it simply make my job redundant? Is all the talk of technological revolution that ricochets around the world out of Silicon Valley, the advent of artificial intelligence and robotics, and the reported demise of human labour inputs loom as a terrible threat, or an amazing opportunity?

Such uncertainty, for many people, drives a somewhat logical reaction of fear. This blog post seeks to address some common negative perceptions for financial advisers and, hopefully, put the fears to rest.

Fear 1: I’m a human adviser… about to be replaced by a robot.

Fear of redundancy by so-called robots is perhaps equated to the re-tooling of modern manufacturing production lines. Does the replacement or augmentation of unskilled labour
mean the potential downfall of knowledge and service professionals? In short, will ‘roboadvisers’ kill off our jobs?

Not really. I’ve previously stated that I don’t like the expression ‘robo-advice’ for good reason. But leaving that argument to one side for now, let’s assume that purported robos are built and rolled out to deliver low cost, simple advice to investors with basic financial needs.

Should that be the case, it will not diminish the need of clients to seek a personal human relationship with their adviser, especially as more sophisticated holistic, or complete, financial advice is required.

An algorithm can’t empathise with clients’ emotions; their concerns and fears.

Robos will arguably help to drive greater client engagement because they offer the promise of affordable and accessible elementary advice. Human advisers have an enduring, critical role to play once a client’s foot is in the door – or once logged on to an automated digital advice platform.

No algorithm or robo-adviser in the world right now can deliver a complete answer to complex financial situations involving different considerations such as estate planning, taxation, wealth protection and risk management. Humans are necessary to delivering holistic financial advice.

In recognition of this, the biggest US robo-advisers are introducing people to round out their financial planning services.

Fear 2: Artificial Intelligence (AI) is a growing threat

While there is abundant conjecture about the application of AI, there is no doubt it has a role to play in our lives, and will ultimately deliver measurable benefits. But views are mixed on
how we should use and control AI.

A high-profile debate emerged recently between Tesla CEO Elon Musk, who questions AI’s benefits, and Facebook founder and CEO Mark Zuckerberg, who is a big AI supporter.

“In the next five to ten years, AI is going to deliver so many improvements in the quality of our lives,” Zuckerberg recently said, rejecting claims from Musk who has argued that superintelligent
AI could wipe out humanity or compromise its existence.

Musk responded to Zuckerberg’s claims on the benefits of AI and said the Facebook founder has a “limited” understanding of AI. There were claims and counter-claims about AI’s benefits. Musk has reportedly donated millions to keep AI “beneficial to humanity,” and on several occasions, he has said AI could eventually become a threat to humans.

The spat between these two-high-profile technology and business leaders highlights how mixed the views are regarding AI. My view is it will be a longer, iterative process for artificial superintelligence to emerge. Is there a real future threat of a superintelligence escaping into the internet? Must we also be mindful about who ends up controlling the technology?

Absolutely. Proactive, not reactive, regulation is imperative, to keep the right checks and balances in place.

Fear 3: AI will never happen in my lifetime

Wrong. AI is everywhere.

There is still a major difference between ‘intelligence’ and ‘autonomy’ (information processing using data vs human intelligence replication).

Do you really think that chess-playing programs that can beat humans means they have superintelligence?

No. It is a very narrow intelligence. The current play of AI is autonomy, which will evolve to become more predictive and cognitive – to better understand human behaviours and decision-making.

Quantum theory is the best empirically confirmed scientific theory in human history, it is essential to every natural science. The replication of quantum cognition (which uses the mathematical principles of quantum theory to model cognitive functionalism, the brain’s information processing, it’s decision making, perception, reasoning, language and judgement capability) still has some way to go, so does quantum computing.

Science will continue to lead us down our natural evolution, and I call it evolution for a reason, because AI is the natural progression of humans.

While AI currently cannot do everything humans can, it does have a role to play including in financial planning. Whether it is voice-powered personal assistants like Siri and Cortana, suggestive internet searches and self-driving cars or computer powered light and power switches, there are many examples of AI in use today.

Companies like Apple, Facebook, Microsoft, Google and Tesla are regularly rolling out ground-breaking AI updates and improvements on how we interact with computers and machine-learning technology. We’re talking about neural networks from the likes of Google’s

DeepMind, performing human-like functions without relying on pre-defined behavioural algorithms.

Only time will tell, but right now, let’s embrace the AI that we have. Even if we don’t use Siri or Cortana, the fact is, we all must talk to computers.

By Jacqui Henderson

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Build compliance mechanisms into your organisation’s key business practices and operations.

Damage control does not come cheap. Just ask Dongjin Koh, President of Mobile at Samsung Electronics.

Koh told press in October this year that the total recall of the inflammable Galaxy Note 7 range – based on reports of just under 50 exploding units of the 2.5 million shipped products – would cost the Korean conglomerate a “heartbreaking amount”.

Or to be more precise, more than $5 billion, Samsung later admitted.

But, according to Chang Sea Jin, National University of Singapore business school professor, the multi-billion dollar Note 7 recall cost was worth it.

“The potential damage to reputation is far greater than short-term financial losses,” Professor Jin told Bloomberg.

Samsung’s relatively quick action to hose down its product fire may save the brand from further tarnish while capping bottom-line costs.

However, some reputational repair bills are far less easily contained.

The global financial services industry, for example, has been handed an ever-escalating annual impost following the massive ‘brand’ damage it suffered during the GFC.

Mostly, that trust repair expense has been wrapped up in the compliance departments of financial firms around the world, which have expanded along with an increasing stack of regulations.

Australia’s ‘staggering’ 492 per cent regulation boom

In a speech to an Australian fintech gathering this November, Treasurer Scott Morrison put the estimated annual compliance price for the global financial industry at more than US$70 billion, with the price of regulatory compliance and governance software set to soar to US$120 billion by 2020.

“It is estimated that from the 2008 financial crisis through 2015, the annual volume of regulatory publications, changes, and announcements increased a staggering 492 per cent,” Morrison said.

While the regulation boom may have been an understandable reaction, neither the industry nor consumers would be particularly pleased with the outcomes to date.

Our compulsive-obsessive regulatory disorder has added complexity and expense to most financial services interactions while doing little to restore fundamental public trust in the industry.

So how should we rein in regulatory inflation without popping what remains of the consumer confidence in financial services?

Technology, of course, offers some promising solutions. To date, though, most of the so-called fintech revolution has been aimed at streamlining, or disrupting, regular business activities rather than building a coherent, seamless compliance process.

Tellingly, Treasurer Morrison called for a greater focus on regulation technology – or RegTech in the inevitable abbreviated form – to meet this burning need.

“In this digital and online environment RegTech can provide enhanced regulatory compliance by building it into an organisation’s key business practices and operations,” he said in the speech.

Morrison said by adopting an embedded “compliance by design” approach, financial services businesses could use RegTech to both lower compliance costs and reduce risks.

“… when successfully implemented, ‘compliance by design’ can increase the confidence of regulators, consumers and the community in the activities and behaviour of Australia’s financial institutions,” he said.

A RegTech revolution for financial planning software

For financial planning software – one of the most-maligned sectors of the broader Australian finance industry – RegTech could prove particularly revolutionary.

Yet for that to happen, the advice industry must lift its technology game.

Today’s consumers want to access their financial information on their smart phones: everything from tracking their goals, cashflow (spending and savings), portfolio management, banking, mortgage, insurance and advice strategies.

However, most of our regulatory compliance systems are built on legacy technology that does not mesh well with the advice process or client-level access points.

We need device-agnostic technology that automatically monitors the suitability, quality and compliance levels of financial advice. A smart statement of advice (SOA) platform built on RegTech principles that can check for inconsistencies across multiple parameters without the need for human intervention. RegTech-backed advice technology has the capability of lowering error rates, potentially eliminating disputes whilst also improving client protection and their underlying advice experience.

In order to fully achieve these revolutionary goals both industry and regulators must agree on what compliant advice looks like in a RegTech world.

If consumers can see their SOA had been ‘rated’ or ‘stamped’ as compliant with industry standards, based on thoroughly-tested RegTech processes, then perhaps confidence in the advice industry itself might be restored.

Reputation-enhancement, in the long-run, offers a far cheaper solution than damage control.

By Jacqui Henderson

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Understanding automation processes can help grow your business.

In a previous article I wrote about the limitations of the recent ASIC guide on digital automated advice (RG 255) and made comparison with the regulatory control of driverless car technology in the United States to help illustrate a key point: tough limits are needed to regulate a wide spectrum of providers that go by the name ‘robo’ advice.

In that article, I mentioned that car manufacturers are not yet ready to roll out a fully-functioning, smart vehicle that replaces human intelligence and human intervention on our roads. The same applies to financial advice, notwithstanding the fantastical allure of a machine or robot designed to replace a human being.

There is a lot of hype around the promise of such technology, however we are still some some years from the promise becoming reality. In any event, I believe that while the human race can produce a driverless car that is safe, by replicating human motor & sensory skills, a fully automated financial advice system that can predict markets with human behaviour is really quite the impossible.

And just as Elon Musk’s renowned Tesla vehicles now offer autopilot functionality, the truth is that most conventional vehicle manufacturers will not bring any new technology – especially driverless software based systems – to market without effective and thorough product testing.

So, as the regulators in Australia start to get their head around the pace and depth of the automated digital advice world, this blog is to offer a quick snapshot of the various development and automation levels of so-called ‘robo’.

I have broken this into four levels, and taken the fourth as my starting point – so we are projecting forward in time when looking at the fully autonomous notion of digital automated advice.

Level 4: autonomous 

Just like the driverless car, level 4 is the advice industry equivalent to “automated” technology. All functions of advice and compliance are performed automatically, with the exception of components that require algorithm applications to predict and mimic human behaviour across an infinite spectrum, like predicting markets to human behaviour. The theory of replicating the brain’s thinking or feeling a ‘certain way’ at a ‘particular time’ or ‘unforeseen events’, is a very complex problem to solve. It is not a like the replication of a motor skill or sensory function.

Autonomous takes the client automatically through the fact finding process, setting out the client’s entire actual position (data aggregation of cashflow & net worth). The system can determine the most optimal strategy & actions to meet all his or her goals and objectives, all within compliant preliminary parameters. The output from client engagement tools map directly to corresponding strategies, they are optimised (via engine algorithms) to achieve the goals and objectives of the client.

Learning and intelligence via data aggregation and algorithms enables the system to learn aspects of human behaviour; the system is constantly learning a clients cashflow habits, learning how to pre-empt issues and ways to reward and motivate customers based on them. There’s no limiting the client to a risk profile, instead the system learns how people feel and respond to risk, teaching them how they can meet their goals.

The system populates applications for Straight Through Processing (STP) to investment & fund platforms and auto acceptance of loadings for automated insurance underwriting services.

The technology is robust, accurate with performance scalability of the calculation and analytics engines. It is designed to handle complex data flows and has rigour around the testing of its algorithms and compliance obligations. It has a ‘human centric’ user experience. The system is convergent across; insurance, superannuation, investment and taxation.

Level 3: semi-autonomous

This is the start of what a.i. provide advisers.

The semi-autonomous definition consists of the parameters of which advisers worked within a manual way, and built these into automated parameters. This level has managed to enable at least four functions of the digital advice process to become automated, similar to cruise control on a car. It means that the adviser is disengaged from physically operating a particular part of the advice process. It has an enabled fact find to database (CRM) merge, client engagement tools, needs analysis to product / asset allocation, digital document editor with no post merge editing in word.

The system can produce 10,000 times more permutations than a human paraplanner, in seconds (with pre-defined parameters for running scenarios to get the best decision output for the client’s situation).

The parts of the advice process automated in this scenario include:

• digital fact find (client’s actual position & net worth),
• needs analysis and;
• a ‘guided decision model’ so that the target product (investment, insurance, super) or asset allocation is suitable.

It is driven around the client’s needs and decisions. It is fully automated and client driven from responsive technology, on any device. Client engagement tools are semi-automated, navigated by the adviser as a conversation lead experience. The advice engine is semi-automated and goals-based, with the ability to model any number of client goals, asset classes, portfolios, investment strategies with any mix of economic, regulatory and behavioural rules automated in milliseconds.

Client net worth, actual position and cash flow is automatically determined in real-time with slight human intervention via data aggregation. Data feeds are automated, expanding across all advice areas. Processing applications with STP has automation with select providers. Advice and services are tracked automatically. Reporting and analytics are fully automated.

Compliance legislative changes are maintained – real-time – with advice suitability parameters automatically monitoring advice and content to prevent non-compliance.

Level 2:  partially automated

This is the industry’s current position with incumbent technology platforms.

And by partially-automated, I mean that most functions are controlled by an adviser (human), in a manual setting. Fact-finding has become digitally automated, modelling can be carried out in a partially automated way and requires an adviser to drive the inputs manually, it’s still limited with linear algorithmic calculations as the software is driven by Excel spreadsheets, built workflows to bring together. Product comparators are automated. There is no automation for tracking client goals against advice strategies and it does not incorporate all facets of holistic advice. It has limited digital client engagement tools to assist the adviser conversations with the client, for educating advice concepts. Data feeds are automated, but not across all advice areas. Processing applications is mainly manual and forms (paper) based.

Level 1: minimally automated

This describes our past. Level One was mostly manual and highly administration intensive. The adviser (human) controlled the end-to-end advice delivery process using paper-based forms and duplicate data entry points for fact finding a client’s actual position. Typically, this level used a whiteboard to draw scenarios and explain advice strategy concepts. Excel spreadsheets for modelling or linear calculator tools that worked in isolation to automate some silo aspects of the advice process. It was difficult to track client goals against advice deliverables with transparency, and was traditionally product focused. Compliance? Labour intensive, and reporting of practice and client information was virtually impossible due to multiple data sources.

Why no level five? Well, we may one day add a Level 5, fully autonomous process – once we can predict human behaviour and financial markets. Mars can be our limit – in line with “Elon Musk’s Mars Adventures”.

The post Are we there yet? The 4 levels of digital financial advice automation appeared first on AdviserVoice.

Perhaps spurred on by the first death of a motorist who placed too much trust in the autopilot technology of his Tesla Model S, the US Secretary of Transportation recently unveiled the first set of rules outlining how the White House intends roping in what to date has been a lawless area of emerging technology.

The new US federal policy imposes a 15-point safety assessment on any company test, manufacture, or deployment of autonomous vehicle technology. Companies will be asked to submit answers to 15 safety questions along with reportedly significant amounts of data to verify any assertions. Will these companies freely share their data (and presumably trade secrets) with Washington?

So what, you say?

Well, it draws an interesting parallel: the potential standoff between the White House and Silicon Valley and other traditional car manufacturers, reflects what is currently shaping up between Australia’s corporate cop and a swag of digital advice providers operating everything from online calculators to complex cloud-based financial algorithms.

My view is that the rules around digital automated advice must be tough. Enforceable. Not an opt-in or a ‘nice to have’ recommendation. Data and algorithms underpinning advice must be subject to scrutiny by qualified experts. There is too much at stake for Australia not to get it right and lead the world with best consumer practice in this emerging area.

Already, some well-placed commentators reflect my own concerns and have flagged that loopholes exist in the ‘low minimum standards’ recently released by the Australian corporate watchdog, ASIC. Its RG255 guidelines give an uninspired insight into the catch-up thinking at ASIC. Its views expressed in RG255 on digital advice show a low-bar for some of the high claims being made about all things ‘robo’ in the industry.

According to ASIC, RG255 brings together ‘some of the issues’ that digital advice providers should consider – from the licensing stage through to the actual provision of advice.

ASIC says: “RG 255 also includes guidance on some issues that are unique to digital advice, such as how the organisational competence obligation applies to digital advice licensees and the ways in which digital advice licensees should monitor and test their algorithms.”

Is self-regulation good enough?

The financial services industry, least of all the major institutions with existing reputational issues of their own, can ill-afford a series of unforeseen robo advice ‘car wrecks’ and a roadway littered with the destruction of client wealth and customer livelihoods.

In my next blog on this topic I will explore further the parallels between the driverless car industry and digital automated financial advice. Just as the car manufacturers are not yet ready to roll out a fully functioning, smart vehicle that replaces human intelligence and intervention on the roads, the so-called ‘robo’ industry is equally years away from deploying systems that render the human adviser redundant.

Jacqui is the founder of Adviser Intelligence. Today with her team, she has enlisted the brains of PhDs, human behaviour experts, digital UI/UX experts, global actuaries and a large development team to solve the adviser and consumer experience for digital automated Goals Based Advice.

Jacqui is passionate about solving the complexities of automating holistic advice for the betterment of consumers and the amazing advisers who service those people.

By Jacqui Henderson

The post What ASIC, grappling with the lawless state of Australian robo advice, must learn from the driverless car industry appeared first on AdviserVoice.

What does Pokemon Go and roboadvice have in common?

Linking the terms ‘robo’ and ‘advice’ together is to me the same as saying Pokémon Go qualifies as an Olympic sport.

Some might consider the popular smartphone app a worthy athletic pursuit…but it all depends on your definition of sport.

The elasticity of definitions is the central point of this blog, and the reason why I believe the hype around so-called ‘robo advice’ has gone unchecked and needs a referral to the fact department.

For the record, then, let’s understand the fundamental elements of ‘robo – advice’.

Robo is using artificial intelligence to mimic and predict human behaviour. Advice, in it’s true nature, is goals oriented and holistic with interrelating elements of a consumer’s cashflow, investment, super, risk and estate planning etc.

No so-called ‘robo advice’ offer I have seen, and I’ve seen a few, including the Betterments of this world, have solved the challenges of a) behavioural science and b) advice that is goals based and holistic.

Human beings differ in their financial decision-making abilities in distinguishing the effects of risk (known probabilities) and ambiguity (unknown probabilities). Human behaviour has ambiguity, aversion, time, knowledge, beliefs and influence from others and there are many theories like Elsberg, Savage and even quantum cognition being used to develop models to predict human behaviour, but the closest we have seen in the finance world is using the ‘trade off’ theory of risk vs rewards, money today vs money tomorrow and the impact of self vs other, by Professor Shachar Kariv. This is a fundamental element for any ’robo’.

I am not the first to say it, but surely from the point of view of supporting ‘high quality financial advice’ – shouldn’t we first agree to a functional definition of robo advice, if not ditch the term altogether?

Digital advice automation

So what is the alternative language for so-called ‘robo advice’? I submit my vote for digital advice automation.

This is because not one clever FinTech ’robo’, IT lab or multinational software corporation like Microsoft has yet developed a deterministic algorithmic application that predicts “uncertainty” – the irrational part of the human brain – alongside “certainty”.

It’s not to say that we aren’t headed in this direction, because when scientists, technologists and professors of our world solve how to mimic and predict human behaviour, that is when ‘robo’ will become true robo.

I prefer the expression digital advice automation because it more accurately reflects our current position.  We human beings will always need human connection, augmented by smart, semi and fully-automated digital tools.

Clients still need to “validate” their thinking, and will always value the human element and relationship of a trusted adviser. The fact is that to a consumer, financial advice is holistic, it all interrelates, it needs to take into consideration proper ‘needs analysis’, goals, client’s actual position in regards to cashflow, (income & debt), risk protection, tax, structures, estate planning and so on.

There is no ‘robo’ that does this.

Some so-called ‘robo’ offers deploy human advisers who provide validation of their advice. It’s just delivered via virtual means like phone and online chat. Personally, I’d like to see some of the robo models under the event of a GFC and see how many “5 question” risk profiles (which is supposed to make up the “needs analysis with best interest duty” component of the advice process), how adequately they predicted their client’s “preference” towards risk and asset allocation, the human behavioural component.

Maybe then we could also answer the question of whether or not it’s a good idea to allow Pokémon Go players into the Olympics.

By Jacqui Henderson

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Footnote:

I had some interesting reaction to an earlier blog on this subject earlier this month. In that post I argued that the current software development race to ‘robo’ the advice process in financial planning falls short as the essential stakeholder – the client – has largely been ignored. The technology medium, not the end user, has somehow become the central point of focus in public discourse.

This observation received a warm and supportive response.

And, bless his contrariness, one detractor. Mr Kidd from Omniwealth cited Betterment, in his words, one of the ‘top robo providers’ in the US as an example of ‘real substance’.

Again, the hype belies the reality. Yes, Betterment is a pioneer in this space, now managing over $4.8bn AUM. The company recently raised $100m in capital funding, valuing it at $700m, or 14.6% of the value of its AUM.

Let’s put this into context: this is 12x the valuation of Blackrock, that is valued at 1.2% of its AUM. Analysts forecast Blackrock to make profits of $4.6bn this year. Betterment does not appear to be making a profit.

Betterment’s average account size is $28,571 and 0.25% pa fees implies $12m pa of revenues. However, it’s reported their total costs are estimated at $50m a year, consisting of high cost of acquisition, administration and development costs. They’ve hit hard competition against Schwab’s ‘free offer’ and Vanguard’s 0.30% robo offerings, reducing their rate of growth in this competitive landscape.

Morningstar estimated last year that robo-advisors need at least $16B and as much as $40B of AUM just to cover core operating costs and recoup advertising expenses, and that robo-advisers may need $50B – $80B of AUM or more to justify their $500M – $700M company valuations, the current linear growth pace of even $150M per month implies that Betterment and similar business Wealthfront may not even reach $10B of AUM by 2020, a mere 1/200^th the size of what a sensationalist A.T. Kearney study projected for robo-advisers just a year ago!

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It’s computer science that incorporates knowledge, reasoning, problem solving, perception, learning and the ability to manipulate. Computers can only act or react like humans if they have an abundance of information relating to the world.

Let’s talk robo advice, an expression with serious limitations that divides opinion and has driven a fair amount of unchecked hype (and some fear) within the finance industry, often by people with a barrow to push.

First off, I don’t like the term ‘robo’ advice.

This is simply because it implies some form of robotic artificial intelligence to act and react like humans, funnelling consumers through electronic channels and reducing their financial requirements to an algorithmic equation to match a product, not the complex, emotional needs of a human being. It implies processing, being code for business efficiency, in turn meaning high volume/ low cost.

Stand back from the hype surrounding so-called ‘robo’ advice technology and what you’ll see is a FinTech industry debate, pumped up mostly by product vendors, largely ignoring the central issue of what is best for the consumer.

The rush to produce the smartest ‘robo’ system is to me akin to a bunch of software code developers imposing their creations on the financial adviser and clients, not necessarily beginning with consumers best interests and holistic objectives in mind.

In other words, the current industry debate is led largely by vendors or start-up techs extolling the virtues of their IT systems. Despite some of the inherent good it can do, the current level of discussion by the ‘Fintech’ and ‘Regtech’ industry as it relates to ‘robo’ financial advice is way too introspective.

Let’s broaden the debate.

Focus on the tangible things that matter: enabled, high quality financial advice, engaged clients and better client lifestyle outcomes. More Australians getting better advice, a better understanding of financial literacy and living a decent, dignified retirement.

That is why I think the discussion has to shift. To me, the bigger picture is that of ‘digital advice automation’ aimed at empowering more quality financial advice.

More quality advice equals better outcomes for consumers – with greater financial literacy levels, better tools and improved quality of life goals and lifestyle benefits. Retiring with dignity.

Yes, it is time to shift the debate.

By Jacqui Henderson, founder & CEO of Adviser Intelligence

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