The Financial Markets Authority (FMA) has formally licensed three new robo-advice providers under the current exemption process including the new KiwiSaver kid on the block, Kōura Wealth.
As revealed here last week, Kōura – part-owned by Hobson Wealth – plans to launch a KiwiSaver scheme using “smart technology and best in class investment strategies”.
Last week Kōura also received its managed investment scheme (MIS) licence, which is the first legal hurdle for KiwiSaver providers. The FMA also has to sign off on Kōura KiwiSaver establishment documents before the scheme can go public.
But Kōura is free to switch on its robo-advice service after the FMA granted an exemption from the current advisory law (that requires personalised advice to be delivered by persons) last week.
In a stock regulatory filing, the FMA notes that granting the exemption to Kōura is “consistent with the objectives of promoting the sound and efficient delivery of financial adviser services and encouraging public confidence in the professionalism and integrity of the providers”.
“.. the FMA is satisfied that the costs of compliance by Koura with the requirement for personalised services to retail clients to be provided by one of the specified types of human adviser are unreasonable and are not justified by the benefit of compliance,” the notice says.
The regulator used the same logic to approve robo-advice exemptions for fund distribution (and now NZX equity broker) firm, Sharesies, and direct life insurer, Pinnacle, last week.
Along with the three new arrivals, the official stock of robo-advice providers in NZ stands at eight (really seven, as Kiwi Wealth – the first to gain approval – has two entities under the exemption).
After a relatively short consultation process, the FMA approved the robo (officially ‘digital’) advice exemption early last year citing a desire to encourage innovation.
Whether the rushed exemption process was necessary remains moot: the early-adopters – including four specialising in KiwiSaver and two life insurers – have yet to make a significant impact. As of next June, robo-advice will be fully-legitimised under the Financial Services Legislation Amendment Act.
Internationally, too, robo-advice has yet to fulfill its disruptive promise, albeit that last week research firm, GlobalData noted technological advances (as seen in its recent UK study) would ultimately threaten existing models.
In a release, Sergel Woldemichael, GlobalData wealth management analyst, said while robo-advisory services initially targeted investment firms, the independent financial advice (IFA) market was now facing technological attack.
“Digital IFAs are only in the early stages of market adoption and so are unlikely to fade away anytime soon,” Woldemichael said. “Technology in the wealth industry has once again opened doors for the masses to receive advice and investment management. Innovations such as digital IFAs are inevitable and although they are unlikely to completely take over the industry, they will appeal to cost-conscious customers.”
Regardless of the robo-appeal, he said GlobalData data found most investors – especially among younger generations – preferred digital advice to include “access to a human adviser”.
As a 2017 white paper published by Mosaic Financial Services Infrastructure found, the so-called ‘hybrid’ digital advice model would emerge as the likely winner in NZ and globally.