Using machines for book learning

Regtech, artificial intelligence, on-demand online education services, and pre-emptive risk detection are the ways of the future for the financial advice industry to tackle compliance and higher education requirements, Malavika Santhebennur found.

With the amount of scrutiny placed on banks, financial institutions, and financial advisers following instances of poor advice, a culture of compliance and higher education standards have been key points of focus for the advice and financial services industry.

The consequences of this are two-fold: one, no longer are four day courses or even a diploma in financial planning-related courses sufficient. New financial planners from 1 January 2019 will require a degree, must undertake a professional year, and pass an exam.

And two, financial advice businesses must implement the latest and most agile technological solutions to foster a culture of compliance and ensure their advisers meet education standards and benchmarks.

It is with these factors in mind that the Federal Government and the Australian Securities and Investments Commission (ASIC) have endorsed regulatory technology, or regtech.

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At the G20 Conference on Digitising Finance, Financial Inclusion and Financial Literacy in January this year, Treasurer Scott Morrison said cynicism and mistrust in financial institutions had grown among consumers, and the institutions had to discover ways and means to restore trust.

“By better utilising technology in regulation we can better achieve our regulatory goals, avoiding the negative effects on productivity, competition and innovation, and delivering lower costs and more reliable protections for consumers and the economy,” Morrison said.  

ASIC believes the regtech sector has significant potential to assist organisations in engendering a culture of compliance, save costs and time related to regulatory matters, and identify learning opportunities.  

Global association of financial institutions, the Institute of International Finance (IIF), defined regtech as “the use of new technologies to solve regulatory and compliance requirements more effectively and efficiently”. 

Technologies could also enable real-time compliance, monitoring, and risk management. According to the 2016 IIF report, ‘Regtech in Financial Services: Technology Solutions for Compliance and Reporting’, cloud analytics are increasingly enabling real-time analytical capabilities, which is an integrated technology architecture that blends different data types at gigabyte and petabyte levels, and has advanced predictive analytical capabilities.

Pre-emptive risk identification

These predictive analytical features can be applied to educating advisers and aiding them in their continuing professional development (CPD), according to Kaplan Professional chief executive, Brian Knight.

Kaplan acquired regtech start-up, Red Marker earlier this year, which is a machine learning and artificial intelligence-based firm. At the time of the acquisition, Knight had said Red Marker’s Artemis system would combine the two elements with micro training to enable advisers to resolve problems as they arose in real-time, eventually leading to a culture of compliance.

Knight told Money Management awareness of the concept regtech and market-led changes, and its potential to enable enhanced regulatory supervision at lower cost has only increased in recent years. 

“A few years ago, no one had even heard much about regtech and firms like Red Marker. But nowadays, we’re getting enormous inbound interest from regulators, clients, corporate clients, media, and prospective employees about regtech and what it can do,” Knight said.

By detecting risks and risky content at the stage of an adviser compiling a statement of advice, and identifying mistakes and errors by processing it through machines at scale and cost, the licensee and adviser would have the opportunity to correct it before the client receives it.

“What we’re currently working on is tying an education piece into it, so if risky content is detected, there’s an immediate learning piece with an assessment that pops on the screen of the user,” Knight said.

“So they actually learn as they go: ‘you’re making a mistake, here’s what you need to read, here’s an assessment’. Then they can self-correct. This will potentially allow compliance teams to be able to be more constructive in what they do rather than having to sit there manually checking files and content.”

Identifying knowledge gaps

Kaplan has also partnered with the University of New South Wales to create the Kaplan-UNSW Global Diagnostic for Financial Advisers (KUDOS), which is a diagnostic tool for the financial services industry, especially for training and compliance purposes.

Developed in consultation with psychometricians from UNSW Global’s Education Assessment Australia (EAA), Kaplan Professional’s senior financial planning subject matter experts and a panel of senior industry practitioners, KUDOS is an assessment tool which provides an indication of gaps in advisers’ knowledge through online supervised multiple choice questions in areas such as social security, investments and markets, taxation, superannuation and retirement income investments, and life insurance and risk management.

UNSW Global Group Executive, Assessments, Martin Spears, noted that some in the financial planning industry held concerns that the gap between new accreditation and education standards released by the Financial Adviser Standards and Ethics Authority (FASEA), and current performance levels could be wide and the education or development issues could be difficult to address.

“KUDOS is putting us in a position to establish current benchmarks. Where is the industry at now? We’ll be able to establish the industry’s current state, more or less, with this body of data,” Spears said.

“Now, armed with knowledge of the gap between current standards and desired accreditation standards, we can ask how does that gap get filled? Is it training? Is it employment experience? What is it?”

Spears said while the KUDOS assessments were establishing current levels, the tool could easily be applied to identify these gaps during consultation for establishing the new education standards and determine what the required standards could be.

UNSW Global chief executive, Rob Forage, said the KUDOS assessments would assist those wanting to provide consultancy advice to a client in understanding their own levels of expertise in different areas and subject matters, and identify areas of weakness that would require additional continuous professional development (CPD).

“If I was the manager of a team of financial advisers, then I’d want to know what the areas of strength and weakness in my team are, and those of the individual members of the team so I could try and actually bring up my team’s performance and provide better advice to clients,” Forage said.

You take that up another notch to the institutional level, then ask “what is the risk that I as an institution am bearing, because I’ve now got hundreds of financial advisers out there on a daily basis providing advice to clients.”

“I’d want to know that my risk was being mitigated because my financial advisers have the right training and they are at that level of competence that actually exceeds the industry standard.”

On-demand education

Financial software firm Adviser Intelligence founder and chief executive, Jacqui Henderson, said she envisaged a scenario where educational technology, or edutech, could play a role in the way CPD services were delivered through the digital medium. 

Dealer groups could deliver on-demand professional development to their advisers, who could access it at their convenience. They could track analytics and determine what content advisers were utilising more, and where they were dropping off mid-way within the training material, which would indicate which sections needed enhancement in content and delivery.

“You would be able to log in and go through an education journey. It’s broken down into modules. You can do that online at your leisure and you can actually track your progress as well as whoever is delivering the education can actually track the adviser’s status along their education journey so you can see their completion rates, that sort of information,” Henderson said.

Henderson also suggested being able to centrally store all adviser qualifications in the one location in order to be able to access all the information. The education services should be a more digital-user experience.

“Augmented reality and virtual reality: two key technologies that will end up innovating this entire space, being able to deliver education in a much more interactive way, taking both the textbook as well as the actual practical experience and delivering that into a much nicer virtual experience that tackles the qualifications in the education piece but also the actual practical experience that’s required,” Henderson said.

Furthermore, real-time regulatory management across Future of Financial Advice (FOFA), anti-money laundering and know-your-customer obligations would assist in automating many of the checkpoints within the advice process, which would lead to organisations being able to consistently deliver quality advice, she added.

Education framework – work in progress

With the Federal Government having announced the educational standards setting body in the form of the Financial Adviser Standards and Ethics Authority (FASEA), and appointing board members in April, the Association of Financial Advisers (AFA) have embarked on research in the marketplace, undertaken by the Beddoes Institute, and in partnership with Kaplan and Asteron Life.

The research aimed to form an industry-wide, collaborative view from the marketplace and advisers themselves on what the education and advice competency framework should entail, and it aimed to survey the attitudes and behaviours of advisers. 

AFA general manager, member services, partnerships and campus AFA, Nick Hakes, said the qualitative interviews of licensees and professional bodies thus far have indicated that they wanted to know how to accelerate the expertise of advisers and how they could adopt the right attitudes and behaviours.

“Because if all FASEA does is take the current education pathway and make it harder, then I don’t know about you but I reckon this is a wonderful opportunity to actually rethink and redefine what we want advisers to learn and to put into practice that’s aligned with what their clients are actually asking of them,” Hakes said.

Hakes noted that clients valued interpersonal, communication and the coaching aspects of advice the most, where advisers created value both emotionally and financially, and where they comprehensively understood the advice they received and were convinced of the strategy.

“It seems that we have our current education framework that bolts on interpersonal skills just at the end and it’s kind of covered at PD [professional development] days and it’s not formalised in any way,” Hakes said.

“What we’re undertaking with this marketplace research is to actually build something that FASEA can adopt formally into an education framework for the next generation of financial advisers.”

Hakes also wanted to ensure that through collaboration, the industry could avoid duplication across different codes of conduct schemes, including the code FASEA would create, the Tax Practitioners Board code, and the AFA code.

“The elements of the professional standards legislation that are operationalised need to be pragmatic and one in which we’re not creating layers of complexity,” Hakes said. 

Beddoes Institute director, Dr Adam Tucker said the research project included a number of phases, including reviewing all of the education and competency frameworks for advisers, reviewing frameworks present in professional associations both locally and overseas, and examining frameworks within universities. 

The next phase involved structured interviews with various stakeholders within financial services, including advisers, heads of licensees, dealer groups, consumer groups, professional associations, regulators and other educators.

The survey group of about 50 to 60 interviewees includes Australian financial services licensees (AFSLs), institutional and non-institutional.

The next phase would involve launching an online panel allowing the industry to vote, which would go through an iterative process known as the delphi method. This would involve presenting online various themes, which regulators, practitioners, and consumers would vote on as to whether they believe qualities such as competencies, skills, abilities, behaviours and attitudes are something advisers should possess.

“The thing we’re finding is that a lot of people widely acknowledge that technical competencies are required [but] they all believe that’s not far enough. Obviously, this speaks to personal qualities of financial advice and personal conduct,” Tucker said.

“One of the themes that seems to be emerging is how is it that an adviser should lead themselves, what should they reflect on when they’re self-evaluating their own performance?”

The other emerging theme, according to Tucker, was the importance placed on advisers being able to lead and interact with and be present with their clients. 

“This is a strong element that’s coming through, particularly in the practical implementation of advice, where advisers are providing their services, often on a one-on-one format to their clients,” Tucker said.

The final theme that had emerged was how advisers interacted with their themes and guides, and how they would coordinate and manage their practice teams to deliver quality advice to clients. This would then extend to how advisers would interact with their peers, broader profession, and the community in a leadership role.

“The question broadly is very much what are the qualities, and by qualities we mean not only knowledge, we mean skills, abilities, attitudes, and behaviours that an adviser should have moving forward,” Tucker said.

FPA’s 100-point plan

At the Financial Planning Association (FPA) Roadshow in June in Sydney, chief executive, Dante de Gori revealed the association’s proposal of a 100-point plan similar to how one would have to gather 100 points’ worth of documents to prove their identity.

While a university degree, which is AQF7-equivalent in the education qualification framework, would enable a financial planner to qualify for the 100 points, the FPA proposed allocating points to other pathways planners may have pursued.

“Everybody in this room has gone down a different pathway to get into the financial planning profession. You’ve all studied different courses, different degrees, different qualifications, different designations throughout your time in the profession,” de Gori said.

“How do you individually assess all those? And we thought, well, each one of those units of study that you’ve completed has to be worth so many points.”

The FPA had allocated a certain number of points for those with a Diploma or Advanced Diploma of Financial Planning. de Gori also said that while experience alone cannot meet the 100-point requirement, the FPA proposed to count CPD towards it, as it would be in line with the planner’s experience.

As advisers were required to store CPD records for seven years, the FPA proposed to allocate two points per year of CPD, meaning it was capped at 14 points.

Advisers were largely receptive of the proposal, with 84 per cent of the 843 respondents who took part in live polling at the various roadshows agreeing or strongly agreeing with the FPA’s proposed 100-point framework.

FPA head of policy and government relations, Ben Marshan said there had been some amendments to the level of points in certain areas following consultation and discussions with some of the working committees and academics around the quota of points to ensure it aligned with AQF levels.

“What we’re proposing is an administrative process, it’s not the standards. We’re making proposals around what the content of the education should be but the 100 points itself is purely from an administrative perspective,” Marshan said.

“It’s making sure that academically it lined up and was robust and took into account the actual level and importance of different types of education, different levels of education, and how they map to each other.”