The exemption for financial robo-advice, now called digital advice, is necessary for New Zealand to catch up to other developed economies that have been more keen to embrace technology in the area, a top law firm says.
Dan Jones, who leads
Russell McVeagh’s corporate advisory group, says the exemption is a necessary first step to put the country’s financial advice regime on equal footing with systems in place in jurisdictions including the Australia, Europe, Singapore, the UK, and the US.
The Financial Advisers' Act 2008 (FAA) has essentially barred provision of personalised financial advice through digital platforms or channels. The exemption, coming into force in early 2018, changes that status quo. The Financial Markets Authority (FMA) has just released its second consultation paper on the exemption.
Digital advice has rapidly grown around the world since 2008. It is estimated that digital advisers had $224bn in assets under management in October. By 2020, that figure is estimated to grow to $2 trillion, the firm said.
However, there are still roadblocks to wider adoption.
“A small number of providers have indicated readiness to launch digital advice solutions under the exemption, yet the timing and infrastructure costs could mean that enthusiasm is limited,” Jones said.
Russell McVeagh has just released a publication titled
“Digital advice exemption: better late than never” that discusses key considerations financial advice providers need to make in light of the exemption.
These considerations include the commercial viability of digital advice, the application process and conditions of the exemption, and the timing of the exemption including relative to wider law reforms.
The two main barriers for customers currently obtaining financial advice under the traditional human adviser model are the cost of financial advice and the minimum amount of investable assets typically required. Globally, the rise of digital advice has been a significant step toward reducing this advice gap by generating a low-cost solution suitable to a broad range of customers.
Jones said there is an opportunity for the exemptions to benefit KiwiSaver investors, who collectively have investment assets of more than $40bn.
“The two main barriers for customers currently obtaining financial advice under the traditional human adviser model are the cost of financial advice and the minimum amount of investable assets typically required,” said senior associate Joanna Khoo. “Globally, the rise of digital advice has been a significant step toward reducing this advice gap by generating a low-cost solution suitable to a broad range of customers.
“While digital advice is already well developed in the US, UK, Australia, Singapore and Europe, New Zealand has been slow off the blocks. At about the time the Financial Advisers' Act 2008 (FAA) came into force here, firms in the US were already launching their first digital advice platforms,” she said.
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