The NZ regulator won’t be stretched by extra robo-cop duties with just a handful of providers expected to apply under an impending automated advice exemption, according to Liam Mason, Financial Markets Authority (FMA) director of regulation.
Mason said as “only a small number” of providers were ready to launch personalised robo-advice solutions in the short-term that would not put a “high additional burden” on the FMA licensing team.
The FMA robo-advice exemption proposal released last week requires all potential providers of such a service to be vetted by the regulator prior to launch for “capability and competence”.
While robo-applicants did not have to hold an existing Financial Markets Conduct Act (FMC) licence, he said the assessment process might be “easier” for those entities already housed under the regime.
However, Mason said the FMA wouldn’t assess the technological underpinning of any robo-advice offerings, with the focus more on “people, technical expertise and product experience”.
In the accompanying submissions released last week, BNZ and Westpac explicitly confirm their intentions to release robo-advice solutions under the proposed FMA exemption. All other major banks are understood to have robots at the ready.
Mercer and Fisher Funds – both FMC-licensed entities – also confirm robo-plans in their respective submissions targeting KiwiSaver, workplace savings and managed fund clients.
The Fisher submission says it would use the exemption to “open up an additional channel to engage with our clients and make our advice to them more accessible”.
“We are currently in the planning stages and would expect to launch a personalised robo-advice service by mid to late 2018,” the Fisher document says.
Mercer, which manages about $6 billion in NZ, says while it has yet to formalise a preferred model “we would expect to provide some form of robo-advice in 2018”.
“…we believe that roboadvice will be the preferred channel for many of our investors,” the group’s submission says.
“We would likely provide advice on our KiwiSaver and Workplace Savings schemes.”
Start-up fund distribution platform, Sharesies, also signaled plans to rapidly roll out a robo – possibly based on offshore systems – under the FMA exemption. The Wellington-based firm does not currently hold an FMC licence.
“We would expect to be able to launch an offering within 2-3 months as we have already started on the scoping and analysis of international models,” the submission says. “Sharesies would focus on a wealth development model. Ensuring customers have the basics covered (mortgage, rainyday fund etc) before helping customers build a diversified investment portfolio that meets their individual objectives and ideals (including a money coach).
Of the 49 robo-advice exemption submissions just six were opposed to the concept, Mason said, including the Institute of Financial Advisers (IFA).
The IFA submission says the premature introduction of robo-advice systems would further “muddy the waters” between ‘sales’ and ‘advice’.
“We suggest caution in the introduction of automated systems,” the submission says. “We would prefer to see automated advice be enabled in the review of the [Financial Advisers Act] FAA as it has already been proposed.”
According to the advisory industry body, there is “no compelling evidence” that ‘computer programmed sales’ or ‘computer programmed advice’ (the IFA’s preferred terms) would bridge the so-called ‘advice gap’.
However, the insurance and savings industry body, the Financial Services Council (FSC), generally supports the robo-advice early exemption process – with a few caveats.
“We submit that the FMA require the capability to effectively regulate robo-advice providers who rely on the exemption,” the FSC says. “This may require additional resources who specialise in automated decision engines, and specialists in products such as fire and general insurance, life insurance, and mortgages.”
The FSC says the regulator should also “monitor all entities permitted to rely on the class exemption” to ensure those firms “without experience or competency in financial services” don’t “deliver poor outcomes”.
While the FMA has approved the robo-advice exemption in principle, it plans another short round of consultation this November on the final draft rule.
The exemption was designed to side-step the current law that requires financial advice to be provided by a ‘natural person’. However, the stop-gap measure should be superseded in 2019 when the yet-to-be-passed Financial Services Legislation Amendment Bill is expected to begin operation.