By Huw Jones
LONDON (Reuters) – Automated financial advisers must provide more clarity on their fees and gather more information on a customer’s financial circumstances to ensure they receive the appropriate service, Britain’s markets regulator said on Monday.
Advice doled out online or via smartphone apps, referred to in the industry as “robo advice”, aims to cut costs for customers looking to save or invest. It also seeks to foster innovation and increase competition in financial services.
But the Financial Conduct Authority (FCA) said two reviews of the industry uncovered problems among early entrants.
The first review examined seven firms offering automated online discretionary investment management, or ODIM. Customers for these companies provide details such as their parameters for investments, before handing over responsibility for their funds.
“Many firms offering ODIM services did not properly evaluate a client’s knowledge and experience, investment objectives and capacity for loss in their suitability assessments,” the FCA said in a statement.
“Some firms did not 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,” the regulator said.
The watchdog’s second review scrutinised three firms that provide fully automated advice, where clients provided fewer details on their circumstances and do not set investment parameters.
“In general, we were not satisfied with the strength of information gathering about clients’ financial circumstances,” the FCA said.
“For example, some services failed to request or gather adequate information about customers’ debt and other outgoings.”
Jon Greer, head of retirement policy at Old Mutual Wealth, said the industry would develop to offer more hybrid models that combined the strengths of face-to-face advice with those of an automated process.
“The journey to 24/7 financial advice provided by robots has not been as swift as anticipated and this review offers an opportunity for reflection on how technology best fits within the financial advice industry,” Greer said.
The watchdog said it expected automated investment services to meet the same regulatory standards as traditional services.
It said some firms were comparing their fees with rival services in a potentially misleading way, such as comparing a non-advised service with one from a rival that offered advice.
Many firms have made significant changes after the FCA intervened. The findings of the two reviews will help the watchdog decide whether to authorise new entrants into the automated market.
(Reporting by Huw Jones; Editing by Edmund Blair)