View more on these topics

Robos under fire over suitability and disclosure failings

FCA logo new 620x430.jpgRobo firms’ shortcomings around suitability, fee disclosure and identifying vulnerable clients have been highlighted in findings from an FCA review today.

The regulator reviewed seven firms offering online discretionary investment management services and three firms giving automated advice.

The FCA says service and fee-related disclosures at most online discretionary investment management firms in its sample were unclear.

Some firms did not make clear whether their service was advised, non-advised, discretionary or non-discretionary.

Others also compared their fee levels with their peers in a “potentially misleading way”.

For example, they compared a non-advised, non-discretionary service with a discretionary service solely on a cost basis without explaining the difference in the nature of the service.

The review also highlights shortcomings in suitability assessments, with many firms failing to properly evaluate a client’s knowledge and experience, investment objectives and capacity for loss.

Some firms failed to ask clients about their knowledge and experience at all, as they felt their service was suitable for all individuals regardless of their investment knowledge and experience.

Regarding streamlined advice models, the FCA says that some automated advice services lacked adequate fact finding and ‘know your client’ focus, instead relying on assumptions about clients.

The report says: “We saw examples where clients could disregard advice given by the automated offering without any safeguards or risk warnings to prevent or challenge this.

“This created uncertainty about whether the business was transacted on the advice of the automated offering, or on an execution-only or insistent client basis.”

In some cases, robo advice services recommended a different transaction to the one that took place at the end of the advice process.

Most firms in the online discretionary investment management services sample were also unable to show they have adequate and up-to-date information about their clients.

Weaknesses were also found in automated advice services identifying and supporting vulnerable consumers, with some offerings relying on the client to self-identify as vulnerable.

The FCA concludes: “The market for both [online discretionary investment management] and auto advice services remains at an early stage, with a number of firms expected to launch services over the coming year. We continue to encourage innovation in automated investment services.

It says: “While this is an evolving market, our rules on suitability of advice apply regardless of the medium through which the service is offered. Assessment of suitability is the firm’s responsibility and our rules and principles apply equally to emerging automated offerings.”

The regulator adds: “We expect existing firms and new entrants into the market to consider the issues in this article and take action where needed. Future reviews will include an assessment of how firms are complying with new requirements introduced by Mifid II and whether the cumulative impact of these important regulatory changes (together with Priips) are working as intended.”

Recommended

Wells Street Journal: Pensions Regulator lobs a rotten Nest egg

Much has been made of the Government’s taxpayer funded campaign encouraging voters to back remaining in the EU. The Leave side predictably went ballastic when details emerged of the 14-page booklet sent to every household in the UK at a cost of £9m. Leading Brexiteers Boris Johnson and Nigel Farage also presumably received the handy […]

consolidator

Former Openwork director to head network’s fifth largest firm

Former Openwork director Philip Martin has joined the network’s fifth largest advice firm as a co-owner and manager. Martin is leading Unique Financial Planning along with practice partner and chief executive Stewart Williams, who set up the firm in 1991. Martin’s departure from Openwork, where he was proposition and marketing director, was confirmed in November […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Robert Milligan 21st May 2018 at 1:49 pm

    Would you travel down the M1 in a Driverless car, knowing you were the only one without a driver, to whom you rely upon, Clearly not, then “why o why” do we have those amongst us who really think a computer could give, “Regulated Advice” covered by PI! If that’s how you consider the relationship of “Adviser to Client” please, B****r Off.

  2. why oh why does this not surprise anyone. FCA want robo advice never tell you how to go about it but as soon as it is set up they start moaning get a grip and off

  3. Far too many people have been overhyping “teknolugy” as the panancea for all our ills. Fine, if you are trying to get funding but, honestly, from the inside looking out, it’s all bunkum.

    Add to that the FCA’s very exacting standards and you have got litigation and FSCS claims coming out of your future ears. If I were a bricks and mortar IFA right now, I’d be screaming for these robos to be in their own FSCS funding category and to be charged the correct risk adjusted contribution from them.

    Suddenly not such a cheap proposition now.

    Not a day goes by now when I gather yet another piece of evidence thet the world really is being ruled by the idiocracy.

  4. Jonathan Willis 22nd May 2018 at 8:37 am

    This is annoying.

    We need to find something low cost that can help those in need with less money. Execution only services give no advice at all and therefore granted don’t offer the same level of protection. However, they do not suggest a suitable portfolio. Not very helpful for those that need some support in choosing the appropriate portfolio for their risk level and capacity for loss.

    Execution only take no account of vulnerable clients and arguably put the consumer at more risk.

    Although they don’t ask clients whether they are vulnerable to ‘self elect’ they do ask questions to kick the client out of the process depending on the answers they give. Eg if they leave no emergency fund or have lots of debt.

  5. Unlike Jonathan Willis, I think this is far from annoying, but bordering on hilarious !

    While we and the robo’s tie ourselves up in a knots like the metaphorical tumble weed drifting across the desert that is the FCA rule book ….. there are those who slice through it, akin to the executors axe.

    The FCA are guilty of nothing more than convincing themselves that a square peg WILL fit in a round hole…..

    I ask, who is the donkey here ? us for repeatedly paying out (FSCS) for the executioner and his poor advice, or the FCA for creating the perfect platform for him ?
    Oh, and don’t forget the extra cost of all this to the consumer…..
    Sorry Jonathan you are right, its far from funny and way past annoying !

  6. There are probably some out there for whom, this Robo stuff suits their purpose, but its not a big number in comparison to entire consumer market. I don’t know about the rest of you but most of my clients all need help and proper advice to navigate our world. I don’t care about robots as they are unlikely to affect me. I do get really frustrated by the FCA thinking they know better than everyone else and thinking that “cheap” automated services will be a great idea for the masses. Martin Wheatley once quoted that “50% of the population don’t know what 50% means”. How then, can the same regulator thinks for one second that the masses will be able to navigate their way through an automated process with any degree of knowledge or safety? It is truly pathetic, in my humble opinion

Leave a comment