While the FCA’s review of automated investment advice in May raises questions around so-called robo-advisers and the quality of advice and fee disclosure, this shouldn’t be seen as a problem only affecting this new type of adviser proposition.
Sadly, it doesn’t take too many Google searches to find several FCA thematic reviews, final notices and 'Dear CEO' letters raising the same concerns over the past couple of decades.
For too long, customers have found it difficult to know exactly what they’re paying and exactly what they’re getting for their money and, when they have received advice, the quality of that advice has been mixed.
While this initial review highlighted areas that need to be, and I’m sure will be, addressed from those providing online services, it is naïve to think that the problems are isolated to this part of the sector alone.
Suitability and affordability remain the main challenge for online advisers and DIY investors.
Recommendations on an investment decision are dependent on an intricate mix of factors, from the investor’s experience and confidence, to their debt and financial stability.
For an online advice service provider, our main proposition simply depends on getting this recommendation right.
Providing appropriate advice to customers is key to them being provided with an investment service that truly meets their needs and this includes telling them not to invest and, instead, to concentrate on getting the financial foundations in place first.
The advice and recommendation should cover the proposed investment strategies, adviser fees and charges, and potential risks. The customer should be able to say that they were adequately aware of the potential outcomes, whether that’s positive or negative.
I absolutely agree with the FCA that there should be no difference between the services that are provided online and those that would be expected by a face-to-face adviser.
My concern is that many online services are simply execution-only investment managers with the sole objective to manage assets regardless of whether the customer should be investing at all.
Online services have the potential to really fill the advice gap and to provide access to financial advice to those who are currently overlooked by the industry and for whom traditional channels are too expensive or are too exclusive.
This is not the same as saying that these people should be given a second-rate service whereby they make the important decisions around suitability and affordability and hand over their money.
This is the non-expert telling the expert what to do. This is not what online advice should be.
Whether this can be done with a digital-only offering is debatable and we certainly have seen the value of including a human element in our proposition. Not only has this provided a valuable method of providing assurance and validation but it also helps us to serve those customers who actually have more complex issues or those who are vulnerable customers.