This is the second part of a blog series about how automated
advice providers can ensure compliance with the Best Interests
Duty. This entry will address some of the measures digital advice
providers can take to ensure compliance with the Act, drawing on
ASIC's recent Consultation Paper (CP 254) and draft Regulatory
Guide (RG 000). Read the first blog
What does ASIC recommend?
ASIC has made numerous proposals as to how a digital advice
provider can ensure compliance with the best interests duty and
meet the safe harbour requirements.
Scoping or Scaling
Scaling means that personal advice is limited in scope. All
personal advice is scaled to some degree. Traditional financial
product advice usually involves the adviser limiting the scope of
their advice via a conversation with the client. In the context of
digital advice, however, conversations will not always take place
because no natural person is providing the advice. ASIC has,
therefore, outlined specific minimum expectations for digital
providers offering scaled advice.
A digital advice provider should explain to the client from the
outset what advice is being offered, and what is not being offered.
They should require the client to actively demonstrate that they
understand the scope of the advice being offered and at various
stages inform the client about the limitations and potential
consequences of this scope. It is equally important to filter out
clients if the advice being offered is not suitable or does not
meet their needs. It is integral that potential clients understand
that this mode of advice is not, and cannot be, holistic. Early
disclosure of the scope of the digital advice can prevent
complaints and/or disputes at a later date. Further, information
regarding costs, dispute resolution processes and the available
processes for withdrawing from advice should be provided. Overall,
ASIC suggests that a digital advice provider should think very
carefully about the way they communicate with clients and ensure
that the communications are user-focused, clear and timely.
In addition to scaling, a digital advice provider must implement
a triage process to filter out clients for whom the digital advice
is not suitable. This involves testing whether the advice being
offered is appropriate and in the best interests of the client. As
mentioned above, if a client seeks advice on an area outside the
scope of the advice being offered, the client should be filtered
out of the digital advice model. Another major component of triage
is that if a client provides inconsistent answers in relation to
their relevant circumstances, a digital advice provider must
respond promptly. A provider must identify the inconsistencies,
contact the client, provide them with additional educational
information and offer them an opportunity to change their input.
Alternatively, the provider must filter the client out of the
Reviewing digital advice and testing algorithms
Another key requirement that ASIC addresses is the process of
reviewing digital advice. Just as traditional financial product
advice must be reviewed, a sample of digital advice provided should
be reviewed by a human adviser for compliance with the law. An
important aspect of this review process is to monitor and test the
algorithms used to provide the digital advice. If problems are
detected, immediate steps need to be taken to rectify the issue,
and advice should not be provided until the algorithm is
functioning properly. Records should be kept of all testing. We
offer 'shadow shopping' services to our clients where we
test digital advice algorithms for flaws or glitches.
ASIC's Consultation Paper and draft RG provide further
details on how digital advice providers can best ensure compliance
with s961B of the Act. Click here to view these documents in
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This article includes five takeouts for robo advisers following RG 255: ASIC's new digital advice regulatory guide.
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