The majority of advice offered by robo advisers is liable to be rejected by consumers, research conducted by the City watchdog has found.
Research published today (November 28) by the Financial Conduct Authority showed "substantial resistance" to robos among consumers, who rejected 57 per cent of decisions offered up as advice by robo advisers.
The study polled 1,800 people to explore attitudes towards robo advice, via an exercise that assessed the individuals for financial literacy and risk aversion along the way.
Poor robo advice — where the advice was a mismatch to a stated objective and risk appetite — was rejected in 58 per cent of cases. Higher-quality robo advice was rejected 56 per cent of the time.
When the regulator delved deeper it found young people were more likely to accept robo advice, with 53 per cent of 18 to 34 year olds accepting the recommendations.
This figure fell to 47 per cent for those aged between 34 and 54, and 37 per cent for those 55 and over.
In gender terms women were more likely to accept robo advice, with 3,265 accepted decisions compared to men’s 2,721.
However the watchdog found the strongest correlation centered on the consumers’ general level of trust in large corporations.
Those with high levels of trust in big businesses accepted robo advice in 70 per cent of cases, compared to a mere 35 per cent of decisions for those with low levels.
Overall the FCA found only 10 per cent were ‘hardcore accepters’, who seemed to accept the robo’s decision whatever the scenario, while 30 per cent rejected every piece of advice the robo gave.
Those who rejected robo advice were presented with three alternatives. Of these, 72 per cent would recommend consulting a human financial adviser as an alternative while 21 per cent would ask family or friends.
The FCA stated this 21 per cent were more likely to be young, of lower socio-economic status, less trusting of banks and have lower financial literacy.
According to the regulator, this showed that although young people were more likely to accept robo advice, those that did not were also less likely to seek professional advice of any kind.
It added: “This raises the concern that those who may be most in need of advice – [those with] lower socio-economic status and low financial literacy - may be least likely to embrace support through robo-advice or any other form of professional guidance.”
The findings also raised questions for the watchdog about the future of robo advice and the obstacles to its widespread acceptance.
The FCA stated: “There is clearly huge potential for robo advice to become a major part of the financial landscape, offering great advantages in cost and convenience for many consumers, liberating us from much of the hard work of tough decisions and potentially saving us from cognitive biases and limitations that may lead us astray in complex scenarios.
“What is less clear is whether it can solve the advice gap in the foreseeable future and whether ultimately those who may need decision support most will have faith in the algorithms of the future.”
Robo advisers have come and gone in recent years, many citing a lack of traction for their departure. In May Investec closed its Click and Invest robo-advice business following two years of losses amounting to £32m.
Concerns have also been raised that full robo advice would be “impossible to regulate” because the decisions it made could not be tracked properly.
In a speech at an artificial intelligence ethics conference this July, FCA director of strategy and competition Christopher Woolard said there was a growing consensus that algorithmic decision-making needed to be ‘explainable’. But he added the desired sophistication of the explanation itself remained up for debate .
imogen.tew@ft.com
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