Robos came under fire this week, with an FCA review finding serious failings in terms of suitability and disclosure. Adviser comments soon followed, praising the regulator for finally getting tough on automated advice.
Here are a few extracts from the FCA:
- Some firms did not make clear whether their service was advised, non-advised, discretionary or non-discretionary.
- Many firms offering online discretionary investment management services did not properly evaluate a client’s knowledge and experience, investment objectives and capacity for loss in their suitability assessments.
- Firms should consider how to improve the amount and quality of client information collected during the auto advice process.
- Firms need to make sure client information is not materially out of date, inaccurate or incomplete when undertaking a decision to trade.
- Firms should consider how their processes and record-keeping might be improved to limit potential harm to customers.
Nowhere on the FCA web page or in the trade press articles and adviser comments that followed does the term “advice gap” appear. Nor is there any mention of the UK savings gap estimated at over £300bn by the International Longevity Centre.
These are the real problems robo advice should be targeting but nobody seems to be measuring progress against these challenges. Instead, the FCA is busy subjecting robos to the same scrutiny it applies to face-to-face advice firms.
Some advisers see this as entirely appropriate and I am sure they, along with the FCA, would argue the regulator has no choice but to implement the rules as written.
The thing is, those rules need to be re-written to reflect a new reality in the wake of RDR. There are up to 10 million UK consumers who are no longer able or prepared to pay the cost of traditional advice services but who urgently need to save if they are to have any prospect of a decent retirement. These are the people robo advice needs to help.
They do not care about legal definitions. They do not know about investing. They do not want to spend hours doing psychology tests. And the far greater harm they face is not investing rather than choosing the wrong investment.
What they need is a better return than cash for a little bit more risk via mainstream assets and at a lower cost than traditional channels. All of this is entirely feasible and could be offered seamlessly to the mass market by high street banks based on data they already know about their clients without requiring lengthy fact-finding or risk questionnaires.
The only problem is, that would require a serious shake-up of the regulatory rulebook. Rules that make it possible to rely on data an organisation already has about its clients – the way Amazon does. Rules that allow the regulator to assess and kitemark low risk products – the way the New Car Assessment Programme works. Rules that enable a robo advice firm to have its algorithms audited and approved – the way the International Standards Association works.
Instead, we got the Financial Advice Market Review from a regulator that seems systemically incapable of seeing the bigger picture.
Kevin Okell is founding director of Altus Consulting