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Now the FCA is worried about robo-advice too – Phillips

by: John Phillips, group operations director at Just Mortgages and Spicerhaart
  • 13/06/2018
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Now the FCA is worried about robo-advice too – Phillips
For some time I have been warning about the potential dangers of the industry becoming more reliant on robo-advice – and now my fears have been confirmed by the Financial Conduct Authority’s (FCA) review.


This put robo-advisers under fire over their suitability, fee disclosure and identifying vulnerable clients.

The review looked at seven firms that offer online discretionary investment management services and three firms giving automated advice.

It found issues with how clear firms were about whether the service was advised, non-advised, discretionary or non-discretionary and around fees.

It questioned how clear the fees were in many cases and noted that some firms compared their fees to peers in a “potentially misleading way”.

The FCA’s report also revealed that there were some examples where clients could disregard robo-advice given without any safeguards or risk warnings to prevent or challenge their decision.

This, of course, then means there is confusion about whether the business has been transacted based on that advice or not.


Ludicrous situation

Worryingly, the report also found that automated advice services were having trouble identifying and supporting vulnerable consumers, with many relying on customers to identify themselves as vulnerable, which is a frankly ludicrous situation to be in.

The fact that the basic advisory needs are not being met in many cases is bad enough, but what about subsequent advice that is given following an in-depth chat with a broker that would not surface during an automated exchange?

For example, one of the key jobs of a broker is to broach the subject of protection.

They must ensure their client completely understands the level of debt they are taking on, and that should anything happen to prevent them from being able to pay the mortgage, they have the right protection in place.

Anyone looking to buy a house of course will know they need a mortgage, but they may not realise the importance of protection.

All borrowers need to understand the importance of protection and they are not going to be able to get that if they use robo-advice.


Stop it evolving further

I know robo-advice is still an evolving market, and the FCA acknowledges that, but it also says that rules on suitability of advice apply regardless of the medium through which the service is offered, so there should be no leeway given in that sense.

Robo-advice is sold as advice but at the moment, it is clearly not living up to its name.

The trouble is, as robo-advice starts to take the place of brokers across the UK, the number of people not receiving good advice will grow.

The FCA has said that “assessment of suitability is the firm’s responsibility” and it expects “existing firms and new entrants into the market to consider the issues” it raises and “take action where needed”.

It also warns that future reviews will include an assessment of how firms are complying with new requirements. But is this enough?

I am pleased with the FCA’s findings and welcome its advice to firms to ensure their automated offerings are as comprehensive as their offline ones.

But when treating customers fairly is one of its central tenets, I think the FCA should be doing more to stop robo-advice from evolving any further until all the issues have been addressed properly.



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