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