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Ian McKenna: Badly executed automated advice will damage consumer confidence

Ian McKenna MM blog 2013

It is sad but true that I regularly spend a Saturday morning surfing the web looking for creative new financial advice services in the UK and internationally.

Last July, I came across what was being presented as an innovative new online advice service. After spending an hour exploring various elements I was seriously disappointed not only by the site itself, which in my view was poorly constructed and far from user-friendly, but by the fact that it contained factual inaccuracies.

I tweeted: “Exploring new online advice site from FSA auth firm. Seriously flawed and inaccurate. Worryingly, site has positive national press coverage.”

To its credit, the following Monday, Money on Toast recognised I might be tweeting about it and contacted me. About six weeks later, Money on Toast came back to me to say that following my feedback it had “now completed a detailed overhaul of our online financial advice tools”.

Given the negative perception I had from my time spent exploring the site previously, before conducting my own review I asked another member of the F&TRC team to cast his eye over the service.

The feedback I got was damming to put it mildly. As part of this process, my colleague put a couple of scenarios through the tools of the site. Using the protection tool, he identified an interest in income protection but he completed the questionnaire showing his partner as the primary income earner.

The system generated a recommendation for income protection stating, “Seeing as you’re the main provider of income in your household, this is very important”,

despite the system later observing, “Income protection probably won’t be the most essential thing for you if you aren’t the main source of income in the household. However, it should still be a consideration.”

Cover on the second income might still be desirable but I would expect the recommendation to correctly identify the previous observation that this might not be a priority, given the partner’s higher income.

There would certainly appear to be inconsistencies here that should be addressed.

During his testing my colleague indicated that he had a pension he might be prepared to switch. However, the system produced a recommendation that made no reference to this at all but simply quoted for a £5,000 single premium and annual contribution of £2,400.

Is it right to recommend a new investment at this stage without first conducting a pension switching assessment? And should the system not identify there is a need for more detailed advice before a recommendation can be made?

The recommendation acknowledged that “Upon using our risk assessment guidance you also found that your riaks (sic) category was very cautious” and then proceeded to recommend a Sipp.

It is notable that the document emailed, which begins by stating : “You have been recommended a Self Invested Personal Pension based on your answers.”

It later states: “Doughbot [the name of the system’s automated tool] has sourced the three most appropriate pensions for you. Simply click apply on the one that you want and complete the online application form”.

Only a single link was provided to a Standard Life Sipp.

Although the investment risk review does state that it is a limited questionnaire and should not take the place of a full risk review, the risk profiling tool does not take into account capacity for loss and risk required.

In the circumstances, I am therefore surprised that a specific product can be “recommended”.

My understanding of the current FSA assessing suitability requirement is that consideration of capacity for loss and risk required are mandatory requirements.

I may be wrong but this was the clear impression I gained last time I sat down with the team behind the FSA’s assessing suitability guidance.

It may be that additional reg-ulatory procedures are applied after a proposal has been received. From a compliance perspective, I certainly hope this is the case.

However, I can’t help but think these issues should be addressed before a recommendation is given and certainly before a prospective client is invited to a complete proposal.

While I would be keen to applaud the concept of a remote advice service that could reduce cost for consumers, online advice services must be subject to the same high regulatory standard required of traditional advice processes – indeed, if anything, it ought to be able to work to a higher benchmark.

This has certainly been achieved by many of the leading propositions in the US; sadly, the way it is currently presented, I do not see Money on Toast passing this hurdle.

I really wanted to like this service, both when I first looked at it last July and now having revisited it. Since I last looked at Money on Toast it has won a prestigious industry award.Regrettably, at this time, I find nothing to enthuse about.

I still believe algorithm-based advice has a big role to play in delivering a higher quality of low-cost advice to many millions of UK consumers, democratising the advice process in the same way as is starting to happen in the US – however, it will have to be far better executed than is the case in this instance.

Ian McKenna is director of the Finance & Technology Research Centre


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. Oh Dear! Just another of those “unintended consequences” that will drive consumers away from taking financial advice or even considering buying protection and investment products.

    This will of course impact on providers.

    The RDRs “unintended consequences” will be far more damaging to our industry in years to come than could possible be envisaged in our philosphy Hector”

    Oh I forgot, Hector is no longer there and has moved on.

    So exactly who is in charge at the FSA and monitoring these “unintended consequences?”

  2. Hi Ian,

    Thank you very much for your feedback. Here at Money on Toast, we take all feedback on board and we are constantly developing our online advice system to offer the best and most accurate “simplified advice” to our users.

    With the onset of RDR we very much see ourselves helping to sort the “Advice Gap” as we give consumers (who would otherwise be pushed out of the market) access to affordable advice and education tools.

    The issues addressed in this article were very much due to minor programming and system issues which are constantly being addressed to ensure we deliver the best service possible.

    Charlie Nicholls – Managing Partner at Money on Toast

  3. What an appalling site. As an IFA I can’t see these sites taking off and we shouldn’t fear them.

    It’s a bit like trying to develope an online site to save going the dentist. Financial advice (much like gpong the dentist) will always be face-to-face.

    The FSA should ban EO on VCTs we will all end up paying for it in the end,

    @charlie get a designer to overhaul the site it really is appalling.

    You’re just generating leads, I asked for a mortgage quote and you didn’t supply one??

    Selling leads are you?

  4. I can’t quite understand your final statement that you believe algorithm advice has a place in the process. It’s always been clear to me that the complexity of individuals requires human interaction for the best advice to be given. Even people speaking the same words often display different attitudes to risk by their tone and facial expression.
    The bottom line is that RDR has upgraded the standard of professional advice given (which is good) but that comes at a cost. And therefore we have priced some people out of the advice market. Automated solutions are less efficient than face to face interviews and will always be cruder – hence cheaper. I feel that all you’re managing to prove is that only the wealthy can get top-flight financial advice in the same way that only the wealthy can get top-flight legal advice. We should stop trying to pretend that there were no downsides to RDR. Making advice unaffordable to a segment of society was always one of them and there is no cheap automated solution to resolve that.

  5. I agree with the title of this article. When something new comes to market it, it can receive a lot of attention and critique. Unfortunately, if it is flawed it can impact on those that follow.

    I also reviewed this site, shortly after launch, and how the system delivered its ‘advice’. The outcomes were at best non-compliant and at worst down right unsuitable.

    Luckily, I think the design of the site and the level of professionalism it delivered, would have probably put most people off before they acted on a recommendation.

    There is a future for online, remote services, but not like this. I do hope that it hasn’t disadvantaged those that follow with more developed solutions.

  6. I should declare an interest as I have a stake in an on-line advice firm. However I do have to agree with Ian’s article that some element of on-line advice inevitably has to come to the UK market. As was reported in MM, Platforum have recently estimated that there are now 14m consumers in the UK with a risk based savings product (and this will grow with auto-enrolement into pensions). Surely none of us believe that 14m people are going to receive face-to-face advice at post-RDR costs.

  7. Whilst there will never be better advice than face face Independant, there is both a place for restrictedif it is more cost effective and also for on-line simplified advice, but the execution of it needs to be the best it can. Personally i do not think the word advice should be used, it should be guidance just as it should be th money guidance service. the consumer should be encouragd to input their data and obtain guidance on issues at which stage they should then be given a voucher for initial face to face meeting for ANY adviser’s first hour of meeting at which stage they can decide whether to go back to implement without advice or take specific advice and/or self excute or adviser execute. It will happen in the end I am sure. Doesn’t mean I like it, nor that Independant face to face is not better.

  8. What consumer confidence?

    The FSA has already knackered that!!!

  9. Just looked at the IHT advice……………………. LOL cant say anything else!

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