Brokers warned about robo mortgage risks

The trade association detailed the risks of robo-advice following the Financial Conduct Authority’s review of automated services in the investment sector earlier this year.

The AMI recognised that while robo-advice was still in its infancy in the mortgage sector, claims made by fintech propositions and traditional mortgage advice firms which are looking onto robo-advice should prompt an assessment of the risks involved.

The trade body highlighted the FCA’s findings of issues with "disclosures, suitability and governance" in the delivery of automated services in the investment industry and warned these risks applied across all sectors.

The process is about ensuring we keep mortgage advice in a safe spaceRobert Sinclair

Specifically, the AMI warned lessons should be learnt from failings in cost disclosure and misleading fees, unclear scopes between advised and execution-only services and instances in the investment sector of "wholly inappropriate" vulnerability criteria.

The FCA’s review found some automated investment services required the consumer to self-identify as vulnerable.

In its caution, the AMI said: "There is a clear expectation from the FCA that firms providing automated services (whether advised or non-advised) meet the same regulatory standards as 'traditional' or advisory services.

"The concept of a level playing field is one that AMI has always supported. Perhaps other FCA departments could take note when considering any deregulation of mortgage advice in favour of online execution-only, as their own thematic work identifies the risk of consumer detriment is very real."

Robert Sinclair, chief executive at the AMI, said very few mortgage advice firms had reached the point of robo-advice but were still working towards digitalising more and more of the consumer journey.

He said: "We felt that FCA’s guidance on the investment sector, who are three or four years ahead of mortgage advice, was appropriate for lessons being learned there in robo-advice.

"The process is about ensuring we keep mortgage advice in a safe space, where it has been for a while now, and learn from the mistakes of other industries."

I will sit up and take notice of robo-advice the moment the algorithms can make me laugh with a good jokeMartin Stewart

Martin Stewart, founder and adviser at London Money, said the expansion of robo-advice into the mortgage industry cannot replicate the relationship between adviser and client.

Mr Stewart said he has seen a number of robo-advice firms come to the market, only to watch them walk straight back out of the door.

He said: "The common denominator here is they were all driven by technologists who have no idea about the advice process.

"I recently spoke to a client who I have known for 15 years - we talked for 45 mins about family and football and for about three minutes about finances."

Mr Stewart said: "I will sit up and take notice of robo-advice the moment the algorithms can make me laugh with a good joke, discuss the merits of a 5-3-2 system and empathise with the trials and tribulations of life - until that time, my clients and I are busy transacting and engaging with each other regularly, ethically and profitably."

Mr Stewart said mortgage advisers were in the market of giving advice not that of product distribution and there is a value to that which clients never take for granted.

Julian Pruggmayer, founder of Financial Risk Management, said a wider adoption of robo-advice would be a movement away from the consumer being treated as the priority.

He said he feels the consumer and their rights are being pushed further and further back down the queue of priorities in favour of company profits, shareholders and streamlining of systems.

Mr Pruggmayer said: "Now the industry wants to force the consumer into getting advise the industry wants to give, in the manner the industry wants to give it, regardless of the interests of the consumer."

rachel.addison@ft.com