The Financial Markets Authority (FMA) has made a change that fundamentally shifts the offering of financial advice in New Zealand enabling personalised robo-advice. This move allows for comprehensive disruption of the sector via new and innovative means of delivering advice.
Current legislation requires personalised advice to be delivered only by a ‘real’ person. This restricts the ability to provide personalised robo-advice via any particular method. The FMA chose to exercise its exemption powers to enable personalised robo-advice under the current regime to enable innovation and improved consumer access to advice.
Overall the considerations centred around a core theme – allowing robo-advice to operate under the same limits and restrictions as human advisers. No particular limits or product restrictions are in place for personalised robo-advice. This means that robo-advice services may cover investments, mortgages and insurance.
What does this mean for existing providers of financial advice?
Quite simply, the message for incumbent players in the space is ‘Innovate or be disrupted’. The exemption and the law change to follow will clear the way for new modes and methods of advice that will (and are already) being used by new and agile companies to deliver cost-effective advice to a wide range of customers.
The target markets will be Generation X for investments and insurance advice, Generation Y for mortgages and insurance, and Millennials for KiwiSaver and getting started. Millennials are very comfortable – and often prefer – to interact digitally. For them a secure text conversation with a reliable adviser is what they expect right now – and they don’t mind if it’s a human or a machine.
What companies need to do to avoid disruption
If you give any form of personalised financial advice then you need to develop a strategy for Robo-Advice.
The most logical areas to start are:Mortgages – Brokers and banks need to be on top of this one due to the high value associated with these transactions.
Insurance – Typical insurances like House, Contents and Car Insurance are likely to be the first area that RA will apply. Health and Life Insurance will likely follow.
KiwiSaver – Especially for job starters and changers. Existing schemes will likely want to prepare their plan for giving updates to members.
Investments – From getting started advice to managing large portfolios, a Robo channel is going to become an increasing expectation from clients especially in the under-50 age bracket.
How will people access advice?
The predominant method of delivering personalised advice will very quickly become conversational chatbots. New businesses like robo-advice want new channels, and the channel getting all the attention at the moment is messaging via chatbots.
Why are chatbots the best way to deliver advice?
This is another easy one: because it’s the closest thing to using a real adviser and it is accessed through natural language. This means the user doesn’t have to be an expert to get what they need. Artificial Intelligence driven conversations are the quickest way to ascertain people’s needs and the best way to keep them up to date.
Another driver is that there is a real move away from apps at present. 50% of US smartphone users downloaded no apps in the 3 months to June this year. What has replaced apps are messaging services and increasingly chatbots. Are consumers happy to talk to businesses on messaging? You bet, 2 billion messages are sent between people and businesses each month.
Not a day goes by without an incoming enquiry to Ambit about how chatbots can be used to meet client and customer needs. Our guidance is always prefaced with the same comment: “Get started now, because your competitors already have.”
To get started on your robo-adviser journey, contact us now.