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FCA robo review a wake-up call for the industry

An FCA review of automated investment advice has given a wake-up call to robo-advisers to meet the same standards as traditional advisers.

Finance & Technology Research Centre director Ian McKenna says the regulator has worked hard with the industry to raise standards and he now hopes it can do the same with robo-advisers.

He says: “The traditional adviser community may have thought the digital community was getting a softer option. The FCA has now made it very clear that is not the case here.”

In a review of automated investment advice this week, the regulator identified shortcomings around suitability, fee disclosure and identifying vulnerable clients.

The FCA says service and fee-related disclosures at most online discretionary investment management firms in its sample were unclear. Some firms did not make clear whether their service was advised, non-advised, discretionary or non-discretionary.

Others also compared their fee levels with their peers in a “potentially misleading way”. The review also highlights shortcomings in suitability assessments, with many firms failing to properly evaluate clients’ knowledge and experience, investment objectives and capacity for loss.

Some firms failed to ask clients about their knowledge and experience at all, as they felt their service was suitable for all individuals regardless of their background.

McKenna says: “Automated advice firms are going to have to question whether they are advised or non-advised. Robo-advisers can’t just say they are non-advised because they think they are – they need to look at their process.”

LEBC public policy director Kay Ingram says a hybrid between face-to-face and robo advice is the best option.

Ingram says: “Robo advice with no human intervention is unlikely to be suitable for those who need to make strategic financial decisions. At the same time, we must recognise that face-to-face is today beyond the financial reaches of many individuals.”

She adds: “We believe the balance lies in bionic advice, which combines technological efficiencies with human empathy. Through bionic advice we are making quality advice accessible to greater numbers of people at a more affordable cost, retaining at the same time the important sense checking which only emotional intelligence can provide.



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Barclays rolls back on robo-advice plans

Barclays has rolled back on plans to launch a robo-advice service, Money Marketing understands. The bank launched a new self-directed investment platform, Smart Investor, in August last year. Sources tell Money Marketing that the bank was also planning to complement this with a hybrid advice offering that would combine online services with a face-to-face element, […]


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Also, as a FCA discussion paper indicated, there are concerns about the interaction between a computer and an end user. In extremis the advised client may be drunk, high on drugs or depressed. How do you test over time the true attitude and experience of the client?

  2. In November 2017, Professor Stephen Hawking issued a chilling warning about the imminent rise of artificial intelligence. During the new interview, Professor Hawking warned that AI will soon reach a level where it will be a ‘new form of life that will outperform humans.’

    There is a move afoot to bring the delivery of financial advice into the 21st century. After all with the smart phone, tablet and virtual reality all breaking through boundaries, why should financial advice not find itself in the vanguard of change?

    It should work, could work, but will not work until something very simple yet clearly requiring a considerable volte-face takes place.

    So, here’s a thought for you lovers of Steve Jobs and even Ned Ludd.

    This may take a little of your time but bear with me please.

    Steve Jobs reckoned that “Older people sit down and ask, ‘What is it?’ but the boy asks, ‘What can I do with it?”.

    Smart technology exists and is readily available in the average home. Algorithm based analytics are there, right now, to deliver for the mass market an automated method of providing the average family with the ability to self medicate their financial ailments and prescribe a solution.

    This happens in many areas of web based life today so why not financial services?

    The elephant in the room of progress is the word ‘advice’. Because in the financial services world where products are delivered/ sold/ distributed by the intermediated channel the buck of responsibility always stops with the financially weakest part of the process, the advisory firm.

    Product failure, rather like design failure in modern airliners, is unheard of. With an airplane the crash blame is pretty much always directed at the pilot.

    Robo or automated solutions should work, it is all in the ‘math’? Very complicated algorithms drive the customer to a very specific outcome.

    This is where it gets complicated because at the moment should the algorithm prove in five, ten or fifteen years to have had an unforeseen glitch regulatory retrospective retribution will rain down on the advisory firm, not the maker of the programme.

    There is a simple solution to a complex problem.

    That is to have the algorithms certified as fit for the purpose they were designed for.

    Fit for purpose accreditation already exists in other areas of regulation. Aircraft cannot fly in UK airspace without CAA approval. Drugs are certified as fit for purpose and prescription with the Medicines & Healthcare products
    Regulatory Agency.

    So why can the FCA not approve automated advice models as fit for purpose?

    The answer according to Andrew Mansley at the FCA, who I spoke to at some length at the PFS Festival, is that it would be “anti competitive”.


    There are examples of this statement being used to create chaos and detriment in this industry. The Maximum Commission Agreement springs to mind. For those new to the world of financial services this is an essential read

    For those with not enough time served in this industry, you should know that from the late eighties increased commission levels from larger distribution channels were being sought after the OFT got rid of the Maximum Commission Agreement (MCA) as it was seen to be anti-competitive.

    I suspect the real reason would be that, in the words of Hector Sants, not known to Mr. Mansley, “if the regulator was to take responsibility for it’s actions, nobody would want to do the job”.

    The FCA needs to consider the following simple steps to improve the embrace of automated opportunities.

    All robo models should apply to the FCA for approval, that approval will certify what the programme can and cannot do and rather like a fully automated vehicle

    The FCA approval will apply to the algorithms and the programme
    Any changes, upgrades would require a certification upgrade
    The robo technology would require PI cover for any unforeseen failures and not the adviser firm

    The advisory firm would NOT be responsible for any advice/ guidance failure of the robo programme as part of the FCA sign off

    In October last year, Professor Stephen Hawking warned that artificial intelligence could develop a will of its own that is in conflict with that of humanity. With this in mind, the advice responsibility buck stops with the technology provider and not the adviser

    Put these in place and both the regulator and the software house would think very carefully about failure, the adviser could engage with more consumers with confidence restored.

    We can always dream?

  3. Robert Milligan 23rd May 2018 at 12:26 pm

    The FCA is absolutely correct, fundamentally Regulated Advice, can only come from a Regulated Adviser, only after completing a fact-finding meeting, which has far reaching intrusive questions, many a client under normal circumstance would not wish discuss. Based on these questions and with experience, the Regulated Adviser will use their knowledge and advise the client with empathy, what is best for them. Often in conflict with the clients own pre- misconceptions. Show me a Product Provider who can get a computer to do that and I will visit Mars. If we allow Robo advice we will end up with a mass of Non Disclosure disputes with providers total unaccountability. Just a thought, for every terminal/ phone used by Robo Advice, they should be invoiced for the FCA/FSCS as per my firms IR numbers, now we will see them run!

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