ASIC finalises guide on digital financial product advice

ASIC has released Regulatory Guide 255 Providing digital financial product advice a guidance on providing digital financial product advice for retail investors. The guide outlines considerations for operating in Australia from the initial licensing stage to the provision of advice.

Digital advice (also known as robo-advice or automated advice) is 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 (e.g. advice about portfolio construction) to a comprehensive financial plan.

RG 255 also includes guidance on some issues that are unique to digital advice, such as how the organisational competence obligation applies to digital advice licensees and the ways in which digital advice licensees should monitor and test their algorithms and their information security arrangements.

The Guide also sets out the minimum steps that digital advice providers should take to comply with the best interests duty in s961B of the Corporations Act when providing ‘scaled advice’ (i.e. personal advice that is limited in scope) to retail clients

Organisational competence

For a digital advice licensee to meet the organisational competence obligation in RG 105, ASIC requires that the licensee has at least one responsible manager who meets the training and competence standards. This will ensure that at least one responsible person within a digital advice licensee satisfies this level of training and competence.

ASIC is giving digital advice licensees that are existing AFS licensees a transition period of six months, from the date of issue of RG255 to comply with the requirement to have at least one responsible manager who meets the training and competence standards. This is to assist the small number of existing licensees that may not have at least one responsible manager who meets the current training and competence standards.

Best interests duty

ASIC’s minimum expectations for digital advice providers offering scaled advice are that they should:
• explain to the client from the outset what advice is being offered and what is not being offered (i.e. the scope of the advice);
• require the client to actively demonstrate that the advice they are seeking is within the scope of what is being offered by the digital advice model;
• at key points in the advice process, inform the client about the limitations and potential consequences of the scope of advice;
Note: ASIC uses the term ‘inform’ because it does not think that wordy disclaimers or fine print are sufficient.
• throughout the advice process, inform the client about key concepts and the relevant risks and benefits associated with the advice being provided;
• filter out clients for whom the advice being offered is not appropriate, or who want advice on a topic outside the scope of advice being offered;
• inform the client about the upfront and ongoing costs of the advice before the advice is given or implemented;
• inform the client about how they can withdraw from the advice being provided, and any associated costs, before the advice is implemented;
• explain what dispute resolution processes are available to the client if they wish to make a complaint; and
• explain why the client is likely to be in a better position if they follow the advice.

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