Robo development under way

DLA Piper senior associate Geoff Ward-Marshall says his firm’s clients are already looking at how their roboadvice offerings will take shape in the new legislative environment.

Tuesday, March 7th 2017, 6:00AM

by Susan Edmunds

A recent report from IOSCO said some analysts anticipate that global spending on digital wealth management initiatives will triple from $4 billion in 2015 to $12b by 2018, due to expanding activity in jurisdictions where roboadvice was not previously being provided, such as New Zealand.

Ward-Marshall said roboadvice was coming to New Zealand whether the sector was ready for it or not.

“We know that offshore providers are eyeing up the opportunity to expand into the New Zealand market.”

The rewrite of advice legislation clears the way for roboadvice for the first time.

Start-ups would need to have a compelling product or service and be successful in obtaining the capital required to fund growth and develop a customer base, he said.

Keeping on the right side of the regulation would be important for that, he said. “Nothing will stop those things in their tracks faster than a regulatory sanction.”

Ward-Marshall said fintech was challenging regulators around the world. “They’re all grappling with how to regulate the risks without tipping the balance against innovation. We’re an importer of global regulation and the FMA will be looking closely at the experiences and learnings of other jurisdictions to help shed light on the right approach to take in New Zealand.”

He said the FMA might not take a different regulatory approach to roboadvice than it did to the rest of the advice sector.

“They’re quite rightly focussed on the customer and on how financial service providers are conducting themselves in relation to their customers – fintech won’t change that.

“However, I think we will see the regulator consider changing its regulatory approach as and when a fintech solution becomes a systemic risk to the financial services system. Taking the roboadvice example, there is a risk that the algorithms may lead to excess volatility in financial markets as a result of ‘herding’ – where a majority of investors invest in the same way.”

IOSCO said exchange-traded funds and investment funds were the most common products covered by robo providers but some countries had seen higher-risk products and strategies begin to be offered by fintech solutions.

Some were starting to evolve to offer holistic planning services, it said. Its report pointed out that this could raise questions regarding the standard of care required.

Tags: roboadvice