UK watchdog says automated financial advice falls short

UK Watchdog Claims Automated Financial Advice Is Inadequate 

The regulator for Britain's markets said Monday that automated financial advisors need to be more transparent about their fees and collect more information about customers' financial situations in order to provide the right service. 

Online or smartphone app-based advice, also known as "Robo advice", is intended to reduce costs for customers who are looking to save money or invest. It also aims to encourage innovation and increase competition within financial services. 

However, the Financial Conduct Authority (FCA) stated that two industry reviews had revealed problems among early entrants. Seven firms that offer automated online discretionary investment management (ODIM) were examined in the first review. 

These companies require customers to provide information about their investment preferences before they can take over the responsibility for funds. 

The FCA stated in a statement that many firms providing ODIM services didn't properly assess a client's knowledge, experience, investment goals and loss capacity in their suitability assessments. The regulator stated that some firms didn't ask clients about their investment experience or knowledge. 

In its second review, the watchdog focused on three firms that offer fully automated advice. However, clients provided less information and did not specify investment parameters. 

The FCA stated that "in general, we were not satisfied by the strength of information collected about clients' financial situations." "For instance, some services didn't request or collect adequate information about customers debt and other outgoings." 

Jon Greer, Old Mutual Wealth's head of retirement policy, stated that the industry would continue to develop hybrid models that combine the best of both face-to-face and automated advice. 

Greer stated that "The journey from robot-based 24/7 financial advice has not been as smooth as expected and that this review provides an opportunity to reflect on how technology best fits within financial advice industry." 

According to the watchdog, automated investment services should be subject to the same regulations as traditional services. According to the report, some firms were comparing fees with other services in a misleading manner. 

For example, comparing a service that was not advised with one that offered advice. Numerous firms have made substantial changes since the FCA intervened. These reviews will inform the FCA about whether it is going to allow new entrants into its automated market.