A sizeable shockwave could be on the cards for online advice next year if the latest noises coming out of Canary Wharf are anything to go by.
According to last week’s New Model Adviser article by Justin Cash, the head of the FCA’s Financial Advice Market Review Secretariat, Ed Smith, said there are a number of risks to consumers from automated or robo-advice services.
These include the danger that consumers misunderstand robo-advice, do not engage with the process properly, or are unduly biased towards one service over another.
Putting aside these three points, the fourth is in fact the most staggering. The FCA is concerned that robo-advice may attract consumers without enough assets to invest.
Surely the whole point of robo-advice is to help tackle the advice gap by providing assistance to the masses, rather than focus on the wealthy who already have a plethora of options available to help them save?
Smith said the FCA’s chief concerns are that consumers ‘need to be sure what they are doing’ and that without the ‘traditional filters’ of face-to-face meetings, robo-advice fails to check for unsuitable clients.
It is this kind of backward thinking, using its old, clunky phrases around suitability, which could hinder innovation in the sector and prevent those who could finally afford advice from getting it. Therefore, the FCA needs to carefully consider what it really wants to achieve before it makes such statements.
MRM’s own head of public and regulatory affairs, Havard Hughes, told me the other day the FCA may end up on something of a collision course with the Government if it clamps down too firmly on the sector.
As he put it, he expects there could be “a major split opening up between the stance of the Government, which is encouraging consumers to take personal responsibility for their financial future – in part through the use of new technology such as robo advice – and the reported approach of the regulator.
“The FCA has made great strides in recent years to encourage the development of financial services. It would be a backward step for consumers and firms alike if it emerged it has in some way pre-judged computerised advice models as being unsuitable for consumers, before the market has even developed,” he added.
The standout point in all of this is that the advice gap is not going to miraculously solve itself. Online advice just might have a shot at it, so the regulator must avoid being too heavy-handed as it seeks to adjust to this emerging sector.
Of course the market is shifting, even if the regulator continues to lag behind. This week a new player called eVestor entered the fray looking to challenge existing online advice propositions with its low-cost model.
With annual fees coming in at just a fraction of the cost of some of its competitors, eVestor certainly has a shot at shaking up the online advice industry, even at this early stage in its development.
But Anthony Morrow, its chief executive, is no less concerned about the FCA’s review than his rivals.
“I can understand that the FCA needs to monitor the sector and act accordingly if it has concerns, but to suggest that face-to-face advice is somehow more complete than if delivered online flies in the face of the evidence,” he said.
“Just last week the regulator said in its thematic review of the UK’s £600bn wealth management industry that around six in ten customers are receiving unsuitable advice, and this is being delivered by face-to-face advisers.
“The rules that are in place should work irrespective of what medium the advice is being delivered through, and there shouldn’t be any need to introduce new legislation specifically for online advice.”