Regulation 

FCA answers your questions on robo-advice

FCA answers your questions on robo-advice

The regulator has addressed several issues raised by firms in its advice unit, an arm of the Financial Conduct Authority set up to encourage the use of technology in the provision of financial advice.

Set up in May 2016, the advice unit offers regulatory feedback to firms developing automated models providing low-cost advice.

So far 17 firms have worked with the unit, which was launched following the Financial Advice Market Review, a joint initiative by the Treasury and the FCA to look at ways to bridge the gap between people who could benefit from financial advice and those who can afford it.

A significant number of the issues raised by advice firms, which the FCA has today (1 August) published answers on, were related to the process of suitability.

For example one firm wanted to serve clients who did not have a clear purpose for the basis of the investment and wanted to know to what extent the rules on suitability allowed it to provide a personal recommendation.

In response the FCA warned the firm that it was difficult to envisage cases where it could ensure its recommendation was suitable without gathering more information.

It said: “The client might express these objectives in broad terms, such as ‘saving for a rainy day’, ‘building wealth’ and ‘outstripping inflation’.

“These terms will mean different things to different customers and may be considered ambiguous without further clarification.

“In such circumstances, the firm’s personal recommendation would need to be suitable for all possible interpretations of the objective in question.

“But if some possible interpretations of the broad objective could make the personal recommendation unsuitable, then the firm would need to gather further information to support its investment advice.”

Another issue was whether a staff member could direct someone towards an online automated advice process without providing a personal recommendation, which the FCA said would be possible.

A firm also asked whether a firm is always required to identify clients who have a zero risk tolerance when it carries out risk profiling, which the FCA said it did.

Another firm which offered automated advice and a non-advice service wanted to know whether it would have provided a personal recommendation if the client opts against using the advised option and whether it should block them from using its non-advised option.

The FCA said: “A recommendation to a client to buy a particular financial product which is presented as suitable or based on a consideration of the consumer’s circumstances will be a personal recommendation whether the client goes on to buy that product or not.

“In this particular circumstance, whether or not the firm chooses to block the client from completing its own non-advised process after receiving a personal recommendation is ultimately a commercial decision for the firm’s senior management.

“However the firm cannot use the non-advised option as a means of avoiding the adviser charging requirements in COBS, as these apply where the firm makes a personal recommendation, not only where the client proceeds with the recommended transaction.”

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