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David Severn: It’s only a question of when online advice takes off


Around 18 years ago when I was at the Personal Investment Authority a major computer manufacturer asked for discussions with me over its plans to introduce an “expert” system to deliver financial advice.

Although the company’s aspirations were wildly over-optimistic given the state of technology at the time, I told those involved that there was nothing in the regulator’s rules at the time that prohibited online advice to customers. A message I repeated many times over the years to others with similar ideas. 

Technology certainly does not stand still and expert systems are already in use in such critical areas as medicine.

It is not a question of whether a serious online advice service will happen but when it will.

Sure, it is not going to be easy. The complexity of financial services and its rapidly changing nature will be difficult to factor in but I’m sure it will happen.

Some point to the importance for customers of the human contact with an adviser who can take a “common sense” view. But I think there are counter arguments.

I met many hundreds of advisers over the years. A few despite being real charmers there were also real rogues. Others were models of probity and competence but had all the personality of a dog whelk and I found it difficult to spend a minute in their company let alone the time which would be needed to deliver full financial advice. An online advice offering removes the issue of personal chemistry between adviser and client.

I hope the FCA’s stance at the Treasury select committee signals a change of approach on the part of the regulator. At the least some guidance from the regulator might help to give confidence to both the industry and consumers over the development of online offerings.

The FCA might also look again at accreditation of software. Since leaving the regulator I have frequently argued for a system of voluntary accreditation for software in the same way as examinations and professional bodies are accredited by the regulator.

David Severn is a former head of retail policy at the FSA



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There are 22 comments at the moment, we would love to hear your opinion too.

  1. Can we call it transactional advice / guidance please? It is not financial advice and is no substitute for financial planning.
    Online advice will happen because of the huge number of people who cannot afford human a financial adviser, providers and the FCA like it because it looks good and there is no comeback for the unknown and unrecorded errors made! Consumers take the responsibility.
    With medicine it is not the obvious symptoms that kill you – but the unknown ones.

  2. Is it online ADVICE or online DIY?

    If the former then I hope FOS beefs up its staff!

    If the latter – goody-goody. When the punters have made a right Horlicks they will no doubt come running with their plastic bags full of papers they don’t understand or wish to keep track of. (Apologies for the split infinitive)

  3. When I read the huge amount of coverage of the whole online advice thing, I’m irresistibly reminded of Henry Ford’s comment about his customers saying they wanted a faster horse.

    Henry’s point was that people find it very difficult to imagine anything completely different from what they already know – and that as a result, they tend to default to imagining improved versions of their current reality. Having spent a generation in a world where investment choices are so broad and decision-making so complex that it’s difficult and dangerous to proceed without advice, it’s not surprising that when we try to imagine how new services could be developed for the digital world, we tend to imagine advice, but online.

    There will undoubtedly be a continuing need for advice. Some people with very complex finances will need a lot, and many more people will need it at a few key moments in their lives. But for most of us, most of the time, what we really need isn’t advice, it’s financial solutions that are simple and straightforward enough that we can easily, quickly and safely choose them for ourselves.

    It doesn’t take a huge feat of imagination to envisage what these might look like – just take a look at the way that NEST defaults people into a perfectly sensible investment solution without the need for any advice or indeed any active decision-making on the part of the individual investor.

    Adapting this kind of approach for use outside auto-enrolment strikes me as about a million times easier and more achievable than trying to adapt the process of giving regulated advice for use outside the face-to-face meeting.

  4. It’s hard to see how software could replace the human intervention of an adviser, given all this can do is ask a series of logic based questions and interpret responses, rather than non verbal cues, such as body language, hesitation and level of understanding. Unless we can somehow reduce Financial Planning down to a series of logic based questions (which I doubt), the most sensible thing to do is look at how an adviser delivers their services and what technologies exist to enable this efficiently. I don’t just mean PoS systems, either. As we all know they are only as good as the data you put in to them.

  5. Harry, I will forgive your split infinitive but , please, do not end a sentence with a preposition.

    On line and without adviser involvement will provide “advice” based solely on the answers to a pre-determined programme of assumptions. The IFA gives advice based on a full fact find together with a wider personal knowledge of any client; new or existing; can any programme match that? Unlikely based on the response of clients who have ” I cannot be bothered with all that”” attitude or who, for a wide range of reasons, are “afraid” of being on line. And so rubbish in,rubbish out. Far greater sophistication will be needed before advice as opposed to generic guidance is given; that might rule it out on cost grounds for some time..

  6. What David Severn and the others who have commented on this subject in the last couple of days are failing to cover is who takes responsibility for “online advice”.

    If it is the client then in no way shape or form can this be called advice. The point of getting advice is to shift the responsibility of doing the right thing from the client, who doesn’t know enough to guarantee the correct outcome, to an adviser who does. We as advisers accept this and build relationships with our clients because of it.

    However, if the online system providing “advice” is forced to accept responsibility then i can not see any providers accepting this. Notice i use the term forced because providers default position is that unless they can be 100% confident that clients have provided all relevant information they will push responsibility for decisions to their clients.

    Well, thats what i think anyway.

  7. Still no attempt to address the FOS question.

    Oh well, keep writing articles saying something’s inevitable and the universe will make it happen eventually. ((C) N Edmonds.)

  8. If the FCA makes it possible for this to happen and effectively endorses the ‘advice’ that results then presumably that becomes the benchmark for what good looks like.

    The FOS could use the same system to assess complaints and wouldn’t need to involve humans.

    Face-to-face advisers could use it to validate their own ‘advice’.

    The FCA will have cracked the whole suitability issue.

    Banks and other big firms will re-emerge in force.

    Man Utd will win the PL this season.

    Which one is most likely I wonder…

  9. “Others were models of probity and competence but had all the personality of a dog whelk and I found it difficult to spend a minute in their company let alone the time which ………………”

    Funny, I’ve met a few compliance people I could say similar things about. Of course they could design a computer to demonstrate ‘what good looks like’. Oops, it seems the ways things are going they already have.

  10. As the architect of depolarisation Mr Severn’s opinion of IFAs is well documented. At the helm of AIFA he failed to fight for grandfathering rights and, when it became clear that IFAs we’re not going to pay his salary, let in the Multi tied salespeople he helped spawn.

    You have done nothing for IFAs. Go away.

  11. headbelowthe parapet 12th February 2014 at 12:55 pm

    Wow, it seems to be Mr Severn’s opinion that advisers are either charming rogues or dull carnivorous gastropods – this from man set the course and then steered the regulator, and then became the DG of Aifa. Little wonder we are where we are!

  12. @ Simon Kershaw

    I don’t think you have got that right. It was Stephen Gay who let in the Multi Tied – restricted in todays parlance.

  13. @Harry

    I think Simon is right. SG presided, for a very brief moment in time, over the emergence of the new definition of independence – whole of market product adviser (and not all of those) in today’s parlance.

  14. So can someone remind me why I took all these exams now please ?

  15. Spot Paul Woolley !!!!

    I was just thinking the same thing ?

  16. Paul Woolley | 12 February 2014 2:05 pm

    We’re on the same page because I asked the very same question to another IFA just today.
    It seems the exam thing (according to this latest debate) wasn’t really that important because the FCA seems to think any PC can be programmed to give advice. (no exams required) Here’s the betting; they’ll be targeting the lucrative side of this no human required advice business and the less lucrative products will fall by the advice giving wayside.

    When the FCA is taking out the human involvement maybe its time they put their own house in order because the humans they’ve employed the past few years haven’t exactly set the gold standard.

    When networks are also too fearful of anything deemed to be even slightly risky even though their advisers are fully qualified to give advise in these areas, but are stopped from doing so, we can only wonder how long it is before we’ll all go the way of the candlestick maker? Humans not allowed….the computer says so…..!!!

  17. Hey you guys, you may as well ask why you took Latin, History, Geography or anything else at O Level or GCSE. It is for education – you know learning things. Don’t tell me you didn’t discover anything new at all when you studied for the exams. Indeed why do so many people just assume that learning stops when you leave school or college.

    Good Lord do you need an Old Fart like me to point this out?

  18. @Harry. I’m not sure you got the point. No one is saying learning stops or isn’t a good idea. The issue i think Paul was alluding too is why have we all been required to reach level 4 by passing multiple exams only to find out that the FCA believes advice can be ‘programmed’ into a computer.

    I think that was the point anyway.

  19. Nick Wardle | 12 February 2014 4:58 pm

    That was certainly the point I responded to.

    As for the forced level 4 learning thing…… My existing qualifications at level 5 were in my opinion already good enough to satisfy the level 4 requirement, but of course the cii decided otherwise. My CeMap (dear God) was deemed worthy of 20 points. I now find a programmer aided and abetted of course by whoever will assume the responsibility for giving financial advice so therefore it seems the requirement for a better qualified adviser can be negated by highly qualified computers. I think not…!!!

  20. Yes, Nick and James you are correct in what you say. That was indeed the point I was making.
    I have been in the financial field all my working life, some 45 years now and have many different qualifications but at the age of 60 plus still have to prove the point.
    Now we find out the FCA are considering this alternative route, laughable.

  21. Behind everything the regulators have done and said for years is the idea that in any given financial planning situation there is a right answer. Given the right data, we’ll come, perhaps with the help of an adviser or sales person, to an answer that can, by some objective criteria, be demonstrated to be ‘right ‘.

    This idea is,in turn, founded on the classical economic theory which starts with the idea that we are rational beings, or, as Thaler would say, ‘econs’. Thaler, one of the pioneers of behavioural economics, and many who have followed him, pointed out that we are humans not econs. Humans are not perfectly rational creatures, and what’s more, we ‘re all different.

    The ‘right answer’ construct is as daft as the idea of the ‘best product’, which cannot be known at the point in time when it is sold.

    If Mr Severn is right, someone is going to spend a fortune computerising the very blind alley in which the regulators have been stuck for years.

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