The biggest unintended consequence of the retail distribution review (RDR) was that it created a massive advice gap.
It may have led to increased protection for consumers, but it caused a big drop in the number of advisers in the market. Additionally, as the cost of providing advice increased it pushed out many people in need of advice, particularly those with smaller pots of around £100,000 or less.
Technology in the form of robo-advice has been one of the solutions put forward to bridge the gap, but it still has a long way to go.
The Financial Advice Market Review (FAMR) baseline report in 2017, suggested that robo-advice had penetrated less than 1 per cent of the retail market.
Since then its take up has been at a snail’s pace.
GlobalData’s 2019 Banking and Payments Survey, found that 4 per cent of UK mass affluent investors regard a robo-adviser as their preferred investment provider - an increase on 1.3 per cent in 2018.
And only 5 per cent of millennial investors in 2019 use robo-advice services.
The term robo-advice tends to be a catch all term to describe digital wealth managers who offer one-off or ongoing advice and online discretionary investment management (Odim) firms.
Robo-investors like Nutmeg and Moneyfarm also get tagged as robo-advisers.
When the FCA initially published its FAMR report in March 2016, it made a series of recommendations aimed at stimulating the development of a market that provides affordable and accessible financial advice.
The recommendations made were designed to tackle barriers to consumers accessing and engaging with financial advice, with a focus on saving into a pension, taking income in retirement and investing.
The report also recommended measures intended to help the industry to develop new and more cost-effective ways of delivering advice and guidance to consumers, in particular, through improved use of technology.
If advice (as defined) is provided, then the only real difference with robo-advice is that the client interacts with an automated system rather than another person.
The FCA’s expectations are essentially the same.
In 2018 an FCA review of firms providing robo-advice found failings around disclosure and suitability.
The first review of seven Odim firms found that the service and fee-related disclosures were unclear while some firms did not make clear whether their service was advised, non-advised, discretionary or non-discretionary.
At Odims the client gives the firm responsibility to invest on the client’s behalf, within parameters agreed with the client, on an ongoing basis.
The second review looked at three firms providing retail investment advice exclusively through automated channels (auto advice), where customers do not interact with human financial advisers.
The advice is given on a one-off basis when the customer first engages with the firm.