Will Financial Advisors Be Replaced By Digital Advisors?


Not just yet according to a review report by The Financial Conduct Authority. The report concludes: “The market for both ODIM (Online Digital 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. 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 offering”.

A number of so called ‘robo-advice’ firms have appeared in recent years, with many promising to deliver financial advice at a cheaper cost than face-to-face financial planners. However, a review released last week by the FCA suggests the market is having some teething troubles. The review highlighted a number of shortcomings around suitability, fee disclosure and the identification of vulnerable clients. Some robo-advisers are now moving towards offering fully regulated advice, as opposed to simply guidance or information, but will the findings of the FCA’s review cause them to change tack?

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

Shortcomings in suitability assessments are also highlighted in the report, with many firms failing to properly evaluate a client’s knowledge and experience, investment objectives and capacity for loss. Some failed to ask about clients’ knowledge and experience at all, as they felt their service was suitable for all individuals. 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. In some cases, robo-advice services recommended a different transaction to the one that actually took place. Most firms in the online discretionary investment management services sample were also unable to show they have adequate and up-to-date information on clients. Weaknesses were also found in automated advice services identifying and supporting vulnerable consumers, with some relying on the client to self-identify.

Redwoods View

We welcome new technology into the market and believe there will always be a place for both robo-advisors and face to face human advisors. However, everyone must play and abide by the same rules of governance and operate in an open and transparent way. It is critical that Clients have absolute clarity about what level of service they are receiving in both the digital and live arena, so they can make direct comparisons on a truly like for like basis. Our reservation right now is that the quality of advice and support we at Redwood can have with a Client and their family on a face to face basis cannot be replicated through a robo-advisor. We and our current Clients really value these conversations as the questions and responses can drive very different scenarios and advice for a Client that just won’t happen with the technology in its current state.

You can see the full article on this topic at moneymarketing.co.uk/robo-rumble or review the FCA report at fca.org.uk/publications

Jasmine Lambert Chartered Financial Planner
Jasmine Lambert

Jasmine is the Managing Director and a Chartered Senior Financial Planner at Redwood Financial. She helps clients manage and grow their wealth and protect their estate. Jasmine also provides expert advice in our FREE Redwood Webinars, where you can learn more about Wills, Trusts and Estate Planning.

Redwood Financial is one of the south’s leading Investments, Pensions, Wills, Trusts & Estate Planning providers and we are dedicated to helping families to grow, protect and enjoy their wealth. With our unrivalled knowledge of Estate Planning, Lasting Powers of Attorney, Probate, Pensions, Savings & Investments, we can advise on any situation.
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