Joanna Hall, vice president of financial services at business management consultant North Highland Consulting, has called for an Ministry of Transport style test for robo-advice.
Ms Hall said: “I agree that there needs to be a standard. Who checks that I don’t know, but people need to have the confidence this sort of thing is to a particular standard and meets certain requirements.”
Ms Hall said the body in charge of such an MOT-style system would need to be completely independent, so it could, for example, be run by the Financial Conduct Authority.
Using the analogy of a car’s engine, she said: “Robo-advice has different costs and comes from different makes with different engines so it is like making sure the key or the engine works - it is the same principle.”
Ms Hall said such a system would reduce the possibility of a mis-selling scandal down the line.
But she added unfortunately there is always scope for human error and that each person has different circumstances and different levels of risk they are willing to take.
Her comments come after the Personal Finance Society’s chief executive Keith Richards said in December last year that robo-advice compliments, rather than threaten regulated advice.
However he also added: “A word of caution though: even though they potentially increase public access to advice, you can’t automate critical systems without running the risk of creating another formulaic mis-selling scandal.”
Dominic Fryer, head of corporate pensions at Aviva, agreed it was important that robo-advice systems are validated to ensure they are delivering advice that complies with regulatory standards.
He said this may help to mitigate the risk of generically flawed advisory models that could result in poor customer outcomes.
Mr Fryer said: “Given that the current framework for advice does not discriminate between robo and human interaction advice models, it is sensible to have independent validation to test the end to end customer journey to safeguard for customers, advisers and providers.”
David Moffat, group executive of outsourcing organisation International Financial Data Services, said robo-advice terrifies advisers at a certain level because they do not actually believe they add sufficient value for what they earn.
He said advisers are worried robo-advice will undermine them by offering a much cheaper alternative to themselves.
Mr Moffatt said: “People who might use that (rob-advice) in their twenties or thirties for narrow specific advice will be the clients who have 20 years hence actually started building up a portfolio, who will then go back to a financial adviser when they are heading towards retirement.
“At that point (they) will have the finances and the portfolio to make it worthwhile for face to face advice.”