Australia: Digital financial advice providers: how can a computer comply with the best interests duty?

Last Updated: 28 May 2017
Article by Dudley Kneller

With the rise of financial technology in Australia lawyers need to be aware of the compliance and risk issues associated with the rise of robo-advice platforms

Financial technology (fintech) is very much alive and kicking in Australia with robo-advice platforms busy trying to fill the gap between full service advice offerings and the provision of generic mass market investment information. Some of these robo products are striking a chord, not only with investors tired of being left in the middle but also with superannuation funds and other financial providers who have recognised the opportunity robo-advice products present for their clients.

This article briefly examines the rise of robo-based advice products in Australia and some of the compliance and risk issues lawyers need to be aware of when advising their clients keen to participate in this space. It provides some guidance on advising on these compliance risks and makes recommendations on assisting clients to plot a course which treads a safe path following the August 2016 release by the Australian Securities and Investments Commission (ASIC) of its Regulatory Guide 255 (RG 255).i

Some initial takeaways

For Australian lawyers who are now being called upon to advise their clients on managing the legal risks associated with robo-advice, there are a few tips to bear in mind:

  • While no new regulatory requirements are introduced by RG 255, clients seeking to offer robo-advice-based products should expect an additional level of scrutiny from ASIC during the licence application process.
  • Given the increased regulatory burdens likely to accompany the provision of "personal" advice-based products, clients will need to carefully consider how to pitch their product. Do they offer "fact"-based products and avoid regulatory oversight or push the boundaries using technology customised for individuals thus triggering more stringent legal obligations?
  • Clients can expect further guidance and regulatory oversight as the digital advice industry matures. Clients operating in this space will need to have the flexibility and willingness to adapt to meet any new regulatory requirements as they evolve moving forward.

So what is "robo-advice"?

ASIC, in their 21 March 2016 media releaseii prior to RG 255, described digital advice (also known as "robo-advice" or "automated advice") as the provision of automated financial product advice using algorithms and technology and without the direct involvement of a human adviser. It can comprise general or personal advice, and range from advice that is narrow in scope (eg, advice about portfolio construction) to comprehensive financial product advice.

Regulatory challenges

As is often the case with law and technology, the law struggles to keep up with advances in technology. Robo-advice presents a particular challenge. Any technology which allows for a greater user experience tailored to a customer's specific and unique financial requirements is fraught with risk. We are no longer just dealing with online financial calculators which spit out borrowing limits or the effect of making extra repayments on your mortgage. The latest technology in this space often utilises artificial intelligence and automated machine learning technologies to deliver a richer and more useful recommendation or outcome based on a customer's unique situation and requirements.

So with that in mind, what are some of the regulatory issues which are likely to apply?

A few threshold issues will assist when dealing with the likely requirements.

Factual advice?

First, if the robo-advice is merely providing "factual" advice, then an Australian financial services licence (AFSL) is not required. Typical examples as noted above include online calculators. This sort of advice is not recommending a particular product, investment strategy or course of action. It is merely providing fact-based information which may be useful to the customer. Factual advice is objectively ascertainable information about financial products, the truth or accuracy of which cannot be reasonably questioned.iii

ASIC will not treat factual information given by a digital licensee as general or personal advice if:

  • the licensee clarifies at the outset that they are giving the customer factual information where there is a reasonable likelihood of doubt; and
  • the information is not intended to imply any recommendation or opinion about a financial product.

The next two categories, "general" advice and "personal" advice, are closely aligned and can often be confusing for clients.

General advice?

The provision of "general advice" will require an AFSL (or at least an exemption). General advice needs to be accompanied by a warning to the customer.

Specifically, if your client is licensed to give general advice, they must warn their customer that:iv

  • the advice has been prepared without taking into account the customer's objectives, financial situation or needs;
  • the customer should, therefore, consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before acting on the advice; and
  • if the advice relates to the purchase or possible purchase of a particular financial product, the customer should obtain a Product Disclosure Statement (PDS) (if required) relating to the product and consider the PDS before making any decision about whether to acquire the product.

Personal advice?

Finally, if the technology allows for the provision of "personal advice", an AFSL will be required (or at least an exemption) and a statement of advice or SOA will also need to be included for the customer. Advice in this context requires the "advisor" to comply with the "best interests" duty and related obligations under the Future of Financial Advice (FOFA) reforms regime. Personal advice considers the customer's objectives, financial situation and other needs.

Advice may be regarded as personal advice if it is presented in a way that means a reasonable person might expect the client to have considered one or more of the customer's objectives, financial situation or needs. It is therefore important clients understand how to properly present the advice and what warnings they include with it.

As such, clients will need to understand within which category their digital advice product is likely to fall. Robo products falling into the "factual" advice category are on safer ground from a regulatory perspective in the sense that they are not subject to the same rigorous oversight that licensees offering general or personal advice-based products are. The flipside for these clients is the sometimes limited nature of the robo-advice product itself.

The opportunity to explore the technology further and make more extensive use of customer information and circumstances may prove too attractive for other clients. These clients will be subject to regulatory scrutiny as their products are more likely to fall within the general and personal advice categories.

Best interests obligation and appropriate advice?

For those clients offering products characterised as personal advice, the challenge can be acute — "How does a computer comply with the best interests obligation?".

Compliance with the best interests requirements of the client is assessed against a "safe harbour" test which includes a number of elements which need to be considered by the adviser. In an off-line world, these elements are managed by human advisers who have the training, experience and ability to adapt to individual situations. The same cannot necessarily be said of robo-advisers however.

Overcoming technology hurdles

Compliance with the best interests requirements is often not assisted by technology.

The underlying technology providing the advice can only ever develop a set of predetermined results and outcomes for the customer. Even though technology now exists which allows computers to "learn" and to some extent independently verify, we are not there yet when it comes to robo-advisers. As such, any approach which applies a predefined set of outcomes to a customer's unique personal circumstances may not provide that customer with appropriate advice.

How does a robo-adviser properly satisfy the requirement to obtain complete and accurate information where it was reasonably apparent that information relating to the customer's relevant circumstances was incomplete or inaccurate? Human advisers sitting down face-to-face with a customer can clarify and confirm customer details, spot any missing information or physically sight that information so it can be properly considered. Digital advice technologies will need to work hard to ensure that any customer information received is accurate and complete at all times but also know when to follow up.

The requirements in s 961B of the Corporations Act 2001 (Cth) were drafted to reflect an off-line advisor world and do not easily lend themselves to digital advice arrangements.

Clients' intent on offering products which fall within the full rigours of the Corporations Act from a regulatory perspective will need to carefully work through and satisfy these requirements. Does RG 255 offer any further assistance for these clients?

ASIC RG 255 — what does it say?

The RG 255 supplements existing guidelines and does not introduce any new regulatory concepts. It notes that as the law is technology-neutral, the obligations applying to the provision of financial advice in a traditional world are the same as those applying to digital advice.

Reflecting on existing requirements, the Corporations Act sets out various licensing obligations for businesses wishing to provide digital advice. Typically your client will be required to obtain an AFSL, be an authorised representative of an AFSL holder or fall within an exemption. The RG 255 prompts existing licensees wishing to provide digital advice to ensure their current authorisations allow them to extend their offering to digital advice. It also notes that new businesses such as fintech start-ups wishing to provide digital advice to clients will need to obtain their own licence or become an authorised representative of an existing licensee.

Helpfully RG 255 provides guidance on the unique issues which arise for the provision of digital advice. These include the following:

  • how the organisational competence obligation in s 912A(1)(e) of the Corporations Act applies to digital advice licensees;
  • the ways in which digital advice licensees should monitor and test their algorithms; and
  • the minimum steps that digital advice providers should take to comply with the best interests duty in s 961B of the Corporations Act when providing "scaled" advice (personal advice limited in scope) to retail clients.

RG 255 provides guidance on the information your client may be required to provide ASIC as part of its AFSL application. For clients seeking to offer digital advice-based products and services, RG 255 lists a number of other information categories which ASIC may require information about. These include the following:

  • the human resources your client will have with the technological knowledge and skills to generally understand the technology and algorithms used to provide the digital advice and to review the digital advice generated by the algorithms;
  • when providing "personal" advice, the level of human review that will be undertaken on the advice generated;
  • if your client is outsourcing any functions, what measures they will put in place to ensure that due skill and care is taken in choosing suitable providers and the measures your client will put in place to monitor the ongoing performance of these service providers;
  • the procedures your client has to monitor and test algorithms;
  • the arrangements your client will put in place to comply with its record-keeping obligations;
  • the risk management and security arrangements your client will have in place to ensure that its customer information is stored and transmitted securely; and
  • how your client will determine whether its professional indemnity insurance cover is adequate.

These are a long list of queries which ASIC may pose to your client during the licence application process. It is important that you make your clients aware of such additional requirements ideally before any application is made to ensure they have considered the likely questions and have put in place measures to address them.

Existing licensees familiar with the licensing requirements under RG 255 may be caught off guard by this and it is therefore important to make sure your more "sophisticated" licensee clients are aware they will be likely subject to additional ASIC scrutiny when embarking on the digital advice option.

Wrap up and final tips

Clients will look to you to assist them to successfully navigate the regulatory challenges posed by digital advice. Your client engagement will likely consider how best to tread this path. You will no doubt need to advise on how best to balance technology innovation with applicable financial regulatory obligations. Clients will look to you throughout their journey as they develop the technology, ensure appropriate licensing is in place and adapt their offering to meet new regulatory requirements as these come through from ASIC.

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. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.