Earlier this year, the industry came together in response to a complex piece of new legislation coming out of the Hayne royal commission response.
The legislation would require platform operators and superannuation trustees to satisfy themselves that consent for ongoing service has been given to the adviser before deducting advice fees via a platform.
While this legislation has now been pushed back to January 2021, there’s no time to waste in developing a consistent, standardised industry response to this challenge.
The consequences of delaying, or building out bespoke solutions, will be costly for all parties. By some estimates the new disclosure requirements could create tens of thousands of hours of additional administrative work for advisers if not approached in the right way.
Many agree. At a roundtable we held in April over 80 people came together to share their views and agree to work collaboratively on a response. We’ve since formed an early adopter group made up of representation from the licensee, platform and product provider communities.
Blockchain supporting ‘trusted transmission’
It’s apparent to me that technology is at the core of solving this problem. More specifically — blockchain technology.
There’s no doubt skepticism still exists around the concept of blockchain, with many conflating it with the cryptocurrency boom (and subsequent crash) of several years ago. We’ve also seen blockchain suggested as a panacea for any number of problems the industry is grappling with — more often than not without merit.
But the reason we acquired blockchain company BC Gateways at the start of this year was because we saw the potential in creating greater efficiency and trust in the financial services industry.
At its core blockchain is about supporting ‘trusted transmission’ — enabling groups of participants to execute transactions and exchange value across a network without an owner or central authority.
But blockchain is more than just a transmission mechanism. By committing each transaction to the chain we create an immutable source of truth which serves as the industry's ‘memory’ of data. This central memory allows multiple organisations to streamline their operating models, deliver better client outcomes and ensure regulatory obligations are met.
Applications for advice
How does this work in the advice industry?
An example would be an adviser recommending a client invest in a managed fund. They complete the application form and the transaction and associated data goes to various parties for approval, including the client, the adviser, the platform, the fund manager, a custodian, a registry, and, potentially, a bank.
When you break it down, most of the time the client and adviser have no contractual relationship with the majority of participants in the value chain. The same also applies in reverse. So what happens today is everyone maintains their own source of truth and adds layers of reconciliations and checks to make sure the data is correct.
This is clearly inefficient, ripe for errors and adding unnecessary cost into financial services.
It’s the perfect use case for blockchain – guaranteeing authenticity and immutability as well as making it easier to audit and access data in real time.
Where to from here?
COVID-19 may have delayed the legislation and altered the industry’s usual ways of working but it hasn’t slowed the resolve. Indeed, the current environment has heightened the appreciation for technology transformation – evidenced by a significant uptick in the use of digital signatures and online engagements across our client base.
The early adopter group is making good progress, having agreed on the minimum data requirements for a licensee configurable form.
The next step is building an intuitive journey of clients opting in to ongoing service, reviewing financial disclosure statements and agreeing to adviser fees with the captured consent made available to the blockchain to distribute to the relevant product providers in a secure manner.
Ultimately this initiative must encompass the whole industry and so whether you’re a client or partner of Iress or not – we want to work with you. We are continuing to reach out to licensees, product manufacturers and other software providers to participate in the design and development of this new approach.
The royal commission highlighted the importance of trust and transparency in all aspects of the advice process. While humans remain at the centre of this, technology can, and should, support it.
Andrew Walsh, chief executive, Iress
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