In order to properly discuss the threat or opportunity that robo-advice poses, we have to set aside the notion that is anything to do with advice in the purest, regulatory definition sense of the word.
Many of these online tools and services are about signposting consumers to default funds, recommended buy lists, or perhaps multi-asset portfolios based on fairly crude “risk buckets.” They are not about advice.
While it is certainly true that robo services can dovetail neatly with advice, maybe through white-labelled offerings, signposts to advisers, or perhaps just automated fact-finds, no one is under any illusion that advice is being given. Except perhaps the investor.
A lot of regulatory chips have been staked on the success of robo-advice. If it continues to take off in the way that is hoped, at least then the FCA will be saved from having to make the fatal admission that an unintended consequence of the RDR was to choke off access to advice.
Concerns have started to bubble up among those in the financial technology space that robo-advice may not be all it is cracked up to be. And a lot of those anxieties – such as inappropriate risk-profiling, questions over suitability – are ones that the regulator has long been banging on about.
“The FCA should take some time out before launching its fêted robo-advice unit to think about the kind of consumer outcomes it is actually looking to achieve”
So it is strange the FCA has chosen not to apply the same rigorous scrutiny to robo-advice firms that it is currently bringing to bear on advisers. Instead, the approach the regulator is adopting on robo-advice is not just hands off but one of actively encouraging new entrants to market.
If it is accepted that robo-advice has little to do with advice, it follows that any potential collapse would not be advisers’ responsibility. In fact, the opposite looks to be true, with an expectation that were a robo-service to fall over, claims would fall on advisers via the Financial Services Compensation Scheme.
As advisers well know, this would not be the first time a provider failure ended up at advisers’ doorsteps. The decision to allocate Keydata recoveries to the adviser funding class was a spectacular error of judgement, and one not to be repeated.
The upcoming FSCS funding review needs to address where potential claims will fall, and before too many investors pile in to robo-advice services without adequate support. In the meantime, the FCA should take some time out before launching its fêted robo-advice unit to think about the kind of consumer outcomes it is actually looking to drive, rather than rushing in blindly and hoping for the best.
Natalie Holt is editor of Money Marketing. Follow her on Twitter: @Natalie_Holt_MM