RegulationJun 16 2014

Wheatley’s automation vision poses real threat to advisers

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It never hurts to get out to a conference or two and hear things direct from the regulator’s mouth.

Indeed, FCA boss Martin Wheatley is pretty impressive in the flesh in that he actually appears to say what he means.

When he spoke at the recent Lansons Future of Financial Services conference, it became very obvious that he wants to bring in automated advice to close the ‘advice gap’.

Advisers may remember that pre-RDR it was difficult to get regulators to admit even the existence of the gap.

Yet while I think there is not much IFAs can do about the initiative (with a consultation paper out next month), I think it carries a threat.

One of the reasons that this is going to make the statute book or at least the rulebook, is because there is a need for a credible system to deliver the retirement guidance.

But quoting Mr Wheatley, I suspect it would happen anyway.

He said: “We have seen the concern that you cannot automate an expert process; that the expert process of providing advice needs four hours of research, two hours of face time and one hour of writing up, and frankly that is quite an expensive model.”

He then suggests that now consumers can see what they are paying for, because of the RDR, some have said: “‘Actually, seven hours of advice at £350 per hour; well I am not sure I am getting value for that’, so there needs to be a different delivery model.”

How far can we automate to deliver the returns consumers need in a safe and cost effective way? John Lappin

Now at this stage Mr Wheatley references Deep Blue, the computer which triumphed over chess world champion Garry Kasparov in 1997, with talk about advancing computer power since then.

He then says he wants to “democratise” advice to a wider community, though not to replace existing advice. “How far can we automate to deliver the returns consumers need in a safe and cost effective way?

“And how can we tackle the advice gap that exists for those people below the threshold that the IFAs will want to spend the time on but who should be saving and buying products?”

Now in this week’s column, I have quoted Mr Wheatley at length so I will keep my analysis short. First, this looks like it is definitely going to happen. Second, this represents a risk to adviser business models, particular the lower value clients (which still could be of considerable value these days) and it gives a boost to just about every direct provider and execution-only system in the market.

If prospective investors are allowed to ask various online questions and then are served up a recommended outcome, then it becomes very powerful indeed.

Investment advisers can marshal all manner of credible arguments about their own value add. They may be able to point to potentially nefarious or at least suboptimal outcomes in the software.

Yet I suspect the benefit of widening saving and investing will have greater appeal. And it is difficult, though perhaps not impossible, to accuse a computer of mis-selling.

This debate will run and run and, of course, we are yet to see the details. But this line, from Mr Wheatley might concentrate minds.

“Does dispensing advice have to come at the high price tag that it has?”

John Lappin blogs about industry issues at www.themoneydebate.co.uk