In a digital age, technology is often seen as the answer. But what exactly is the question?
If you ask the FCA, it may have something to do with tackling the advice gap. There are few signs that adviser charges, or the minimum level of client assets required, are coming down any time soon. So one approach from the regulator has been to lend its support to the development of robo-advice propositions, which aim to accommodate investors with fewer assets.
Having gained encouragement from the watchdog in the form of Project Innovate and other initiatives, firms entering this space may well find favour with a younger generation that is comfortable with digital products, if not the complexities of investing.
But recent developments remind us that innovation alone does not guarantee success, and can even spell trouble.
The FCA has issued its findings from two reviews: one looking at firms offering automated online discretionary investment management, and the other assessing those businesses providing retail investment advice exclusively through automated channels. The results are less than encouraging.
The regulator uncovered cases where service and fee-related disclosures were not clear, and suitability assessments where firms “did not properly evaluate a client’s knowledge and experience, investment objectives and capacity for loss”. Perhaps more worryingly, the second review also found weaknesses in identifying and supporting vulnerable consumers.
For some, the findings will be deeply unsurprising: back in December 2016, research conducted by Boring Money for the Financial Services Consumer Panel exposed similar problems with robo-advice disclosure. It also found that some firms had even failed to make clear whether they were providing advice or guidance.
But the FCA’s update marks an important step, because it sends a message to the many financial services firms wishing to enter this early-stage market: obey the rules or face the consequences. Or, in the regulator’s own words: “Our rules on suitability of advice apply regardless of the medium through which the service is offered.”
Admittedly, the consequences of the latest findings do not extend beyond a slap on the wrist. That may gall advisers long accustomed to the stringent compliance requirements regarding their face-to-face interactions. But it should also remind them that the hard work on this front is not without its rewards.
Meeting regulatory requirements can be significant work. Intermediaries are often having to adapt to major changes, whether this relates to changing consumer habits or new rules – this year alone has seen Mifid II and the General Data Protection Regulation come into play.
These lofty requirements mean that, where others may fall short, advisers stand out from the pack. As the industry continues to grow more professional, these high standards will help them in their dealings with clients, whether it’s bringing in new business or justifying charges.
Given their own experiences, advisers may, understandably, feel sceptical about whether robo-advisers can deliver the goods in areas such as suitability. But there are reasons to be pleased that the FCA has fired a warning shot as opposed to a clampdown that pushes innovative firms out of the market.