INTHEBLACK June 2022 - Magazine - Page 51
assembling a portfolio of assets such that the
expected return is maximised for a given level of risk.
“Human financial advisers continue to have
an important role to play in this area. This is
why we observe a tendency for financial advisers
for convergence to a hybrid model allowing for
collaboration between robo and human advisers,”
Goncalves-Pinto says.
REGULATING THE ROBOTS
The rapid growth in the number of robo-advice
providers offering various financial tools presents
challenges for regulators.
In November 2021, the US Securities and
Exchange Commission (SEC) flagged compliance
concerns following a series of examinations focused
on how advisers were using digital advice tools.
In a risk alert, the SEC says its Division of
Examinations recently observed a “significant
increase” in the use of robots among advisers
working with retirement plans and retail clients.
“On the one hand, automation can offer significant
benefits, including providing convenient, accessible
and lower-cost services for investors, and enhancing
operational efficiency for advisers,” the SEC says.
“When robo-advisers fail to comply with their
regulatory obligations, however, investors may
experience poor outcomes.”
The regulator notes that, if a robo-adviser is
programmed to act on conflicts of interest that raises
the costs or decreases the quality of the services
provided, a client may be harmed as a result of
an adviser putting their own interests ahead of its
clients.
“That could entail product recommendations
where the adviser has an undisclosed conflict of
interest, excessive trading or placing clients into
costly, complex or risky products based on an
insufficient assessment of the client’s goals and risk
profile.”
In 2019, concerns expressed by the Australian
Securities and Investments Commission (ASIC) saw
a Sydney-based financial services licensee close down
two of its robo-advice subsidiaries.
The subsidiaries provided automated advice to
consumers on self-managed superannuation fund
establishment, life insurance, budgeting and tax
issues, using a proprietary algorithm.
At the time, ASIC said it was concerned about the
quality of advice provided to users, and that the due
diligence conducted by the online tools into client
circumstances and objectives was insufficient.
Above: U.S. Securities
and Exchange
Commission building
in Washington, DC.
Left: Dr Luis Filipe
Goncalves-Pinto.
intheblack.cpaaustralia.com.au June 2022 51