Online investment manager Nutmeg argues the FCA has been “too open-minded” on robo-advice without enough clarity on how consumers will be protected.
Speaking at an Aviva roundtable event in London last week, Nutmeg policy executive Frankie Evans said: “The FCA has been criticised, perhaps rightly, for being too open-minded about robo-advice without really being clear enough about how it’s going to protect the customer.
“Is there going to the right statutory protections for the consumer on robo-advice as it stands? We’re not completely confident on that.
“It would be useful if the FCA could give more information about how it’s going to protect the consumer from lousy or badly updated or uninformed systems.
“Because if you have one mistake in the system, you could be advising 200 people in the space of five hours.”
Robo-advice was one area of focus for the Treasury and the FCA in the Financial Advice Market Review. One of the report’s key recommendations calls on the regulator to establish an advice unit to help firms build automated advice models.
Aurora Financial Planning chartered financial planner Aj Somal says the intervention is a welcome one.
“Although robo-advice will make getting services to the masses easier, there still should be protections in place for the end consumer.
“The FCA should be looking at more developed markets like North America to make sure it is keeping up with the risks.”
Highclere Financial Services partner Alan Lakey says: “The view from the FCA has long been that robo-advice would be the salvation of the industry, and I can understand why they’ve been promoting opportunities for it in the hopes of tackling the advice gap.
“But it’s important that the limitations and the dangers are well understood.
“Many people out there will think they can manage their finances by visiting things like Money Saving Expert, but when it comes to pensions that’s where the typical consumer can’t necessarily expect to get a good result without some serious support.
“So when there are problems with robo-advice sites, then we need to know that it’s something the FCA has already looked at.”
Pilot Financial Planning director Ian Thomas adds more certainty is still needed on how automated services can and should be created.
He says: “Robo-advice creates the kind of risks where if one person presses the wrong button then every one of your customers is going to get poor advice.
“But there certainly doesn’t seem to be any quality assurance over who is writing the algorithms behind it, or clarity over whether those people need to be level six qualified.
“It seems to be something the FCA is trying to create an environment where people can create this sort of stuff, but it’s not without risk.”
Evans adds while Nutmeg welcomes the majority of measures proposed in the FAMR, the firm has concerns about the ability of consumers to compare different advice offerings.
He says: “We didn’t expect that in FAMR, but we would have liked to have seen it. It would be good to have some kind of transparent way of comparing the cost of advice in one place – a Compare the Market kind of platform.
“We need some way for people to see what options are available to them at a much more transparent price, rather than calling up an adviser and being told that you need to come to a meeting first.
“Because for many people who can save quite small amounts it’s still unaffordable and expensive.”