Roboadvice could come sooner than law reform
The Financial Markets Authority is considering ways that roboadvice could be made possible before the new financial advice legislation kicks in.
Monday, May 15th 2017, 6:00AM 
9 Comments
by Susan Edmunds
Binu Paul, managing director of Savvy Kiwi
The Financial Services Legislation Amendment Bill, which repeals and replaces the Financial Advisers Act, will clear the way for roboadvice to operate in New Zealand for the first time.
But lawyers said it was not happening fast enough.
Geoff Ward-Marshall, of DLA Piper, said the law would not change until 2019 under the current timeline. "Fintech is fast-moving and there is a real risk that New Zealand firms looking to operate in the roboadvice area will be left behind by their overseas competitors."
He said he had not seen any concerns raised about the introduction of automated advice during the Financial Advisers Act review process.
"Industry is ready and waiting for it... and bearing in mind the glaring advice gap, consumers need it."
Lloyd Kavanagh, chair and partner of Minter Ellison Rudd Watts, agreed: "I do think there is a risk of New Zealand being left behind as innovation develops pace around the world. That means the benefit, of making low cost independent advice available to the large numbers of New Zealanders who do not currently receive advice, would be delayed.
"In addition, if the innovation occurs elsewhere, and is only rolled out to NZ belatedly after having been designed to suit other markets, that means New Zealand loses the opportunity to develop its technology sector."
A spokeswoman for the Ministry of Business, Innovation and Employment said the concern was being addressed.
"We received feedback from some stakeholders that we should consider options to ensure the ability to provide roboadvice is not unduly delayed. We are currently analysing these submissions. The transitional arrangements will aim to strike a balance between ensuring New Zealand providers are not at a competitive disadvantage and that there are sufficient safeguards in place for investors," she said.
"MBIE has also discussed this matter with FMA. They say: 'The FMA has been considering ways to facilitate digital advice sooner than the law reform. We think this may be possible within our existing exemption powers, and we expect to publish our proposals through consultation next month, and will be looking for feedback on this'."
Binu Paul, managing director of Savvy Kiwi, said it was in lawyers’ interests to get robo activity kicking off soon. But he said start-ups should take care.
"I'd highly recommend focussing on the commercial viability rather than rushing into an untested opportunity if you have only limited capital.
"Personally my suggestion to parties waiting to launch roboadvisory services would be to focus on potential customers and how they might pay you rather than rushing into writing out checks for marketing and legal services, consultants or technology developers. That should be secondary to your primary goal, being your commercial model. Once you have identified a potentially successful model, then perhaps your first stop should be to get your legal framework and infrastructure etc sorted.”
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As regards legislation, with the big end of town involved, one can expect things to be fast tracked – for the consumers benefit of course.
Off to see one of the financial planning chains.
Get given a standard risk tolerance questionnaire.
Which leads to a standard "investor type"
Which leads to a standard portfolio.
Thank G*d for the independents, who take time out from the sales process to do some listening and thinking.
What evidence do you have to say that? Or is it just hope?
Behavioural economic and psychology studies seem to repeatedly throw up examples where computers following even simple rules are better or not much different than highly trained "experts".
Human experts tend to follow simple rules anyway but also have a bad habit of seeing patterns when none exists.
And that is before we get to the potential of deep learning machines...
1. The thing that prevents digital technologies from dispensing comprehensive advice in NZ are current regulations. Simply put, this requires a human to complete the advice.
2. There are 2 groups whom I'm aware of (and who aren't making big noises) who are advanced in their development of a digital model for NZ. To my knowledge, these are scheduled to launch within the next 12 months - albeit they are not aimed at replacing the advice community.
Can you point me to the statute or regulation that is authority for your statement "Simply put, this requires a human to complete the advice"
As I said above, when I looked at the FAA 2008 it said a firm is allowed to give class advice to a retail client, or any advice to a wholesale client.
Perhaps there is a lawyer reader who might be inclined to weigh into this thread.
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1. Big institutions are likely to want to provide robo-advice (really robo-sales)
2. Big institutions hire big law firms
3. When big law firms advocate for faster adoption of robo friendly laws, they are actually submitting on behalf of the big institutions.
My understanding of the current Financial Advisers Act is that robo firms can provide
(1) class advice to retail clients and
(2) financial adviser services to wholesale clients
provided they are registered under FSPRAct.
What they can't do is provide personalised advice to retail clients, as that is preserved to named types of individuals [s18 FAA2008].
It's hard to see how FMA could legally extend the law when the legislation is expressed so clearly.
If it took me less than an hour to get to my conclusion (if correct of course) I can't see that it should take more than a day for professional lawyers to work that one out too.[I have allowed them more time to consult with colleagues, get external advice and escalate the decision up the food chain - all things that we sole practitioners don't have to worry about)