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.
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.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.
It is difficult to see how these can be delivered via an online system alone, no matter how advanced technologies become in the future.
With a robust advice channel established, forming the core proposition, refining the tools and systems need equal care and attention.
Like many other newcomers shaping this space, we are investing heavily in our systems, including website, customer journey, customer portal and the app. This is enabling us to deliver a better service for customers and means we will continue to evolve as we learn from customer feedback and experiences, along with the guidance from the FCA.
Ensuring suitability for customers will mean recommending customers do not invest, and this should be widely accepted for the industry to maintain integrity.
We need to make it easier for people to understand what they’re paying and to compare those costs.There is still much to do on fee transparency and it is disappointing to see that many firms still haven’t implemented Mifid II. This is an area surely the FCA will look to take action on soon.
When carrying out our recent research into adviser fees, navigating the complexity of different fees and charges made it difficult to establish the all-in total cost.
The best way to create clarity around charges is to outlaw complex fee structures entirely.
Instead, there should be one simple all-in cost disclosed immediately on advice being given, or an account opened by a customer and this should include all components; from advice, to platform, to underlying portfolio with transaction charges.
We need to make it easier for people to understand what they’re paying and to compare those costs.
There is lots of talk around competition but this cannot happen until we make it easier for people to compare – it happens in almost all areas of life now so I don’t see why this industry should be any different.
The robo-adviser tag should be banned. Most of these robo-advisers offer no sort of advice whatsoever and, where they do, it is around the suitability of the portfolio.
They should be advising on product and on long-term investing, rather than simply having some self-assessment questions acting as filters in an online decision tree.
Overall, for an industry very much in is its formative years, these reviews are essential to spot any problems and to help shape propositions.
Anything that helps the market improve the outcomes for all customers, especially those less experienced and with less money to invest, is welcome.
Anthony Morrow is chief executive at evestor
