It has been roughly a decade and a half since I heard government minister Patricia Hewitt talk about the possibility of online advice without human involvement.
Speaking at a Labour party conference fringe meeting in Bournemouth, she seemed rather taken with the idea. The then chief regulator Sir Howard Davies chipped in with an idea for pared down advice.
In Parliament in the past couple of weeks, regulators discussed bringing the two together with simplified advice with no human involvement still constituting advice. An intriguing phrase from FCA chairman John Griffith-Jones saw him suggesting in this context that the FCA “did not want the perfect to be the enemy of the good”.
So is this the rise of the machines with advisers finally sidelined by process, programming and code?
So is this the rise of the machines with advisers finally sidelined by process, programming and code?The answer to that is clearly no. Investment advisers are probably more certain of their position than they have been for a long time. Adviser charging is stabilising as a method of payment. There has been no turning away from advisers by clients, although some clients may have been turned away.
What may be happening, however, is that more people may be learning how to construct their own portfolios. Hardly a week goes by without the launch of a new execution-only (EO) service in some form.
But any suggestion that advice and the resulting decisions could be automated and still be considered advice may well represent a huge boost to these operations.
We await the regulator’s wise words on the matter, but does it mean that these services could really start telling people what to do? Green light that and it makes these services more powerful because they may be able to reach those sections of the population who are already reluctant do-it-yourselfers. It may start to interest other financial services players put off by cost, or potential liability as well.
Providing the funds and fund management to power these services could prove very lucrative for a fund manager that gets the positioning right.
But such an initiative will not be easy to get correct.
People may want strong guidance and advice, but not from a robot – or more realistically from an application on their phone.
It may encourage certain types of investment style, but not others. The rules could be very tightly drawn or only be suitable for certain types of product. And of course, it may prove to be neither perfect nor good. Consider, for example, the increasing perception that online EO annuity brokers are not providing anything like optimal outcomes.
We don’t know what recourse to compensation an investor may have if they believe they have been missold by a machine.
Finally, as I noted at the start of this column, this is not a new topic of debate in financial services, but for the first time in a long time regulators seem determined to deliver something.
It could radically change how financial services are delivered. That doesn’t have to be terrible news for advisers – I suspect taxi drivers have more to fear from Google driverless cars.
It could help by encouraging more accumulation of assets. It might prove a policy mistake because it just doesn’t deliver what it promises.
Or it could take another 15 years before we see anything. But somehow I don’t think it will be that long.
John Lappin blogs about industry issues at www.themoneydebate.co.uk
