Regulation  

Large firms kill robo advice plans

Large firms kill robo advice plans

At least two big market players have aborted attempts to break into robo-advice because they fear a lack of Financial Conduct Authority guidance on what is regulated advice, the chief executive of Distribution Technology has said.

Mr Goss said two of his company’s clients had scrapped automated advice plans because of concerns about regulatory risk.

“The issue is what is a personal recommendation and what is regulated advice,” he said.

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“There is uncertainty about what happens if you risk profile a client. Does that consist of a personal recommendation because you have information about their situation?

“The FCA has tried to clarify this issue but even with that clarification there are still some big unanswered questions.”

Mr Goss declined to name the firms that judged entering the robo-market to be too risky, but said they were “very large” and their decision was part of a wider issue.

Clarity on focused advice, generally considered the right basis for automated advice services, should form a key part of results of the Financial Advice Market Review, Mr Goss said.

It is expected the FAMR results will be reported alongside next week’s Budget, Mr Goss said.

It is clear firms want to see greater clarity about how they can use digital in their business.

Focused advice is not defined in the FCA Handbook, but is commonly used to describe a situation where the client requests a firm only gives personal recommendations relating to a specific need, designated investment or certain assets.

Mr Goss is not the first fintech chief executive to question the current definitions of advice.

Last year Nick Hungerford, the founder of Nutmeg, said the industry needed to “update its vocabulary to fit with the real world”.

Meanwhile Aegon UK has also stressed the need for clear, intuitive definitions that resonate with customers.

This month the Financial Services Consumer Panel reported regulatory and common definitions of advice do not coincide, confusing consumers.

Under its Project Innovate the FCA aims to help firms meet approval for new financial products and services. As of January it had supported 177 businesses with their ideas.

Several firms have said they are considering launching into the robo-space. In February Selectapension said it was planning to launch a robo-advice proposition in the third quarter of this year. Bellpenny has also said it is planning a robo-advice service next quarter.

But few are currently coming to market amid concerns about business risk and ongoing regulatory uncertainty.

In November, the FCA announced it was looking into creating a regulatory sandbox, with support from HM Treasury, to allow businesses to test their ideas without danger of enforcement action and without putting consumers at risk.

In its consultation document on the FAMR, the FCA said it was looking at services which go beyond the regulatory definition of advice.

It added that the regulator is interested to hear whether it can build on previous guidance on the boundary between regulated advice services and non-regulated advice and provide more support to help reduce uncertainty for firms.