Closing the advice gap is important – but professional financial advice shouldn’t be watered down.
The emergence of digital technology, combined with widespread concern in the industry about the financial advice gap, has inspired a surge of robo-advice propositions.
And any attempt to tap into technology to make people’s financial lives easier to manage should be welcomed.
However, as the number of such robo-advice firms increases, there is a real risk that some will think they can take a ‘light touch’ approach to regulation.
This means that financial advice could be watered down if action is not taken. Not only is this bad for the reputation of the advice industry, it could also be detrimental to customers – clearly something that all professional advisers want to avoid.
Let’s be clear. As far as the FCA is concerned, financial advice needs to be delivered by a qualified person.
Rigorous standards are in place to ensure only those fit to be offering advice to customers are able to do so. While they are great tools, robo-advisers are not authorised to offer advice.
The more this market matures, the more robo-advice firms could inadvertently – or even intentionally – step into areas outside their remit. Thankfully, the FCA has been keen to encourage innovation in the industry, and in an effort to help to close the advice gap, has created the Innovation Hub.
The idea behind it was to create a risk-free space for new propositions to develop, and avoid the chokehold of regulation that can often stifle start-ups.
While we would endorse the regulator’s effort to create a supportive environment for fledgling firms, many of these so-called robo-advice firms are treading a thin line between financial guidance (which does not need to be regulated) and financial advice (which does). This is where we would urge caution.
The risk is that these firms try and provide advice by the back door. Without the proper regulations in place to protect against this, the risks of giving incorrect or poor quality advice can be very grave.
We must be clear about the boundaries between firms that are authorised to offer advice and firms that are not. This is something we are concerned about as an organisation, but it is also something we think the regulator needs to consider carefully.
Existing firms considering offering a robo-advice channel need to remember that even if the customer is just asking a single question about advice, by choosing to answer it, a firm is giving by default, advice.
Indeed, even if there is no advice given, will the clients understand that the process undertaken via this online channel is not advice given by the parent firm?
No matter how many warning messages are issued, if the investment goes down it is likely that it will be the parent firm that will be held to blame by the client “It’s your robot!”. There may not be a financial liability but there could well be severe reputational damage.