The Financial Markets Authority (FMA) has given the green light to fast-tracking regulation that will make it legal for automated systems – aka robo-advisors -- to provide financial advice.
Under current regulations, personalised financial advice must be provided by an authorised financial adviser who must be a “natural person.” This effectively prohibits the use of online financial platforms giving such advice.
The move follows a consultation process started in June on whether The FMA should use its exemption powers to enable personalised robo-advice under the current financial advice regime to foster innovation and improve consumer access to advice.
According to online financial and investment platform Ilumomy the FMA recognised that online financial advice platforms could improve the wider public’s access to personalised advice services, and could help to address an advice gap it had previously identified in New Zealand.
Ilumomy CEO and founder, Rachel Strevens said the move was a huge step forward for New Zealand.
“We’ve been providing a basic level of online financial advice for the last six months, and the feedback from customers has been great. However, we’ve been significantly restricted in what we can do due to the regulation that exists in New Zealand, which has acted as a bit of a handbrake.
“This decision will allow us to go into a lot more detail with our customers, and provide them with much more valuable and beneficial personalised advice via our online platform.”
Strevens said robo-advice platforms offered many benefits to everyday New Zealanders because their low operating cost model allowed for a much wider audience to access financial advice.
“Robo-advice platforms globally have proven popular with millennials and investors with smaller amounts of money to invest who would generally not have access to other financial advice channels,” she said.
“In New Zealand, the FMA believes robo-advice could be of particular help to KiwiSaver investors who collectively have investment assets of more than $40b. Less than 0.3 percent of all new KiwiSaver accounts or transfers receive personalised financial advice.”
She added: “There are many countries that have been allowing this kind of robo-advice for years, however our regulation has held us back, so it’s great to have this positive step forward from the FMA. We’ve been expecting and preparing for this decision so we’re perfectly positioned to make the most of these rule changes for our customers.”
The FMA says it considered submissions to the consultation and decided to grant an exemption. Advice providers will need to apply to the FMA to rely on the exemption. It aims for this process to start in early 2018.
Also, it said, finalising the exemption would require a further consultation, in November, on the details of the application process and drafting of the exemption notice.
The FMA has decided not to impose financial limits on personalised robo-advice and the eligible product list has been expanded to include mortgages and personal insurance products.
The FMA’s director of regulation, Liam Mason, said, “Firms who want to offer personalised robo-advice services must apply to us to rely on the exemption. This is consistent with our gatekeeper role for other financial advisers (AFAs and QFEs) and provides us with increased visibility over the providers entering this market.”