When an industry bandwagon starts to roll, as it is with robo-advice, my instinct as an ex-regulator is to look for what could go wrong.
Don’t misunderstand me. I am not being a Luddite.
In fact, I have argued for years that the application of digital technology could play a major role in delivering consistent and accurate advice while reducing costs for firms. The proposition, however, needs to be right.
Take as an example the recent announcement by B&CE and LV of a service to help those approaching retirement age.
Announcing this, it was said: “The free guidance report should help savers assess their options, and at just £49 for detailed online retirement advice, this brings an additional affordable choice for our members.”
I worry when the word “guidance” is used.
There is a risk that firms are trying to shift responsibility to consumers and avoid liability for advice.
The research I saw as a regulator pointed to consumers making a very clear distinction: factual information, without any gloss is accepted as such, but if there is any attempt to steer consumers to a particular solution they regard it as “advice”, even if a firm tries to dress it up as something else.
We are also told it costs just £49 for “detailed” advice.
I suspect the scope of this advice is very narrow and does not attempt to address the total needs of the member, which is what a professional IFA or planner would do.
This is another symptom of internet offerings, segmenting consumers’ financial needs into self-contained boxes without attempting to see the bigger picture.
The risk is that consumers’ finances end up as a hodge-podge of products which fit poorly with their overall needs and leaving some needs unmet.
Then there is what I like to call “the computer says ‘yes’” issue with robo-advice.
We need to remember that robo-advice is only as good as the people designing it.
If a system is designed such that no matter what information consumers put in it always comes out with an answer to buy a product the firm wants to sell then it might be better characterised as an automated mis-selling machine.
All the action at the moment seems to be on the “supply” side of robo-advice.
What is missing is reliable information on the “demand” side: how consumers actually make use of online financial services.
This is something that I am surprised has not been researched in greater depth by the Financial Conduct Authority or the Financial Services Consumer Panel.
Yes, there is evidence that there is significant use of the internet for simple banking transactions and for things like car insurance.