What are the nine essential ingredients of a successful digital advice partnership?

With the first round of the QAR now complete and the government openly encouraging super funds to raise their service, it's pretty clear super funds need to find an effective and sustainable way to provide personalised advice to their members. This means super funds need to dip their toes into all the compliance complexities and regulations that come with personal advice.?

To help this become a reality, the government has indicated a willingness to cut back some, but not all, of the red tape. More contentiously, they’ve also floated the idea of reducing professional standards to enable access to a lower-qualified workforce for simple advice matters.

For trustees, this presents a significant challenge as they look to reduce costs and improve the financial efficiency of their funds. Historically, providing advice has been a loss-leading area for big institutions —?especially when there's no cross-subsidisation or cross-selling of products. The legal risks and severe penalties inherent in failing personal interests only increase the anguish.

Though the concept of scalable advice isn't new, the outdated approach of creating complicated and rigid advice paths won't wash with the enormous number of members and the shrinking number of advisers.

Similarly, the idea of ramping up adviser numbers in super funds would lead to soaring expenses, even if it were possible. So the only solution is digital. This can either be a fully digital service or a blend of in-person and online advice solutions.?

Bringing services in-house, outsourcing, or finding a middle ground involves the classic 'buy, build, or rent' dilemma. Regardless of the choice, it's daunting to acknowledge that the building cost alone could surpass $30 - $50 million. Even after completion, there's a risk of lagging behind early adopters who are already streets ahead. That's a substantial investment from members compared to gaining access to the complete suite for a fraction of the capital expenditure and without years of development. Plus, there's the risk of execution.

While there's a growing interest in digital advice, some recent entrants have had a chequered history, marketed with public failures and financial undercapitalisation leading to administration. The majority of these setbacks involved services that offered limited digitalised investment products rather than personalised digital advice. Little wonder in retrospect that a digital investment manager without meaningful distribution failed to make inroads against one of the world's best retirement systems.?

The good news for trustees and administrators is that game-changing services are available now that offer product-neutral, cost-effective, and personal advice all under their own AFSL.

The big question is, which forward-thinking CEOs are brave enough to do their homework, trust their instincts, and embrace digital advice?

1. ? Personal advice tailored to individuals

It has to be recognised that every single member is unique, so it makes sense that a digital advice provider should be able to provide tailored advice that meets that particular individual's needs. Consumers have higher expectations on digital personalisation than ever. So stay clear of lazy solutions that group people into regimented categories or cohorts that some members don’t fit into.

2. Shared purpose to help members and drive engagement and retention

The beauty of good digital advice solutions is that in theory, they're scalable, which naturally brings costs down. While there are a few operators who lumber in large build costs, you should focus on providers that have the best interests of both their end clients and you at heart. In essence, there should be skin in the game for both the technology provider and super fund to make digital advice work. So sharing KPIs and pricing plans that incentivise both the member's advice outcomes and your overarching business goals of helping and retaining members is key. Some providers work seamlessly with call centres — this is indicative of a shared vision and a holistic outcome.

3. Holistic advice services that cover all aspects of a member's life

The best advice outcomes for members are the ones that cater for all aspects of a member's life. It’s important that the advice is easy to obtain and follow. It should be able to address many areas that go beyond superannuation. If that’s called upon. It’s important to provide members with advice that helps to grow their super with extra contributions, understand suitable investments for them, and navigate the transition into drawing income to fund their retirement. But good digital advice can go further and take into account their debts, savings goals as well as their partner's financial situation. But importantly the member can elect what areas of guidance and advice they wish to access.

4. Individualised proactive advice?

The real power of digital advice is the ability to engage with an individual member on their own terms with nudges and advice that reflect their specific individual situation. Super funds should be able to move away from communication with cohorts and move to individualised communication that is relevant to the member at that point in time. This will result in specific advice that members value and in turn, increase the value to place on the relationship with their super fund.

5. How many clients do they currently service?

While this might seem pretty obvious, there are a lot of businesses promising the world without actually having a working solution in the market. Take it from experience, the world of financial advice is pretty tricky, so creating an online experience takes years to perfect. Our advice? Choose a partner with a proven solution that’s currently live and works within the regulatory confines of the Australian market.

6. Do they have their own licence?

Again, this shouldn't be overlooked. Having a partner with an Australian Financial Services Licence means all of the legal requirements and compliance responsibility sit with them, not you. It also demonstrates an awareness of governance and introduces secondary risk management with their own Responsible Managers and their compliance obligations. While there’s no doubt this saves you time and money, as they value their licence it also means they have equal skin in the game as any issue has to be dealt with in a compliant manner. So no shirking responsibility or passing the risk liability back to you.

7. Do they earn fees for recommending products?

Asking a simple question like how a digital adviser makes their money can reveal a lot. Consider a financial advice partner that is fully independent which means their sole focus is on helping people, not selling products." After all, advice is not about products, it's to help individual members understand what they should do next to be better off.

8. Extra tight security protocols

We've all read horror stories about cyber scamming, so it’s critical to choose a partner that has a robust security system in place where all the data is anonymised and encrypted into separate storage facilities in Australia. Be wary of businesses that use offshore teams or share their data with their parent business overseas, as they can be more susceptible to data breaches.

9. Are they stable and properly financed?

The tech world is notoriously fickle — just 4 out of 5 startups failing in their first year. So successful digital advice providers should be able to demonstrate not just a successful track record of helping real clients in the real world, they should also be able to demonstrate they have the funds to support their operations into the future. A solid balance sheet, strong financial backing and a robust experienced board of directors are all strong comfort factors when linking a partnership.

*21% of startups fail in the first year (National Business Capital)