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.