The City watchdog has pledged to continue to support the development of robo advice after finding the the sector's assets have jumped by 700 per cent since 2016.
According to the Financial Conduct Authority’s assessment of the advice market, published today (December 3), the estimated assets under advice for automated advice services sat at £3.2bn as at Q3 2019 — 700 per cent up from the £400m just three years before.
The watchdog’s 66-page report, named the Evaluation of the Impact of the RDR and FAMR, showed the assets managed by robo advisers had gradually increased every year.
Consumer awareness of robo advice was also on the up, the FCA found, with the number of people having heard of these services up from 10 per cent in 2017 to 19 per cent in 2019.
Slow progress
However, the watchdog raised concerns about the slow uptake of robo advice despite increased awareness and assets under advice.
Only 1.3 per cent of UK adults have used a provider of automated online investment in the past year while the assets under management account for less than 0.5 per cent of the market.
The FCA also found that those consumers that robo advice was targeted at — less affluent and less confident consumers — were not typically the end user.
Investors aged between 25 and 44 were the most likely to use automated advice services, but they were primarily people who could have already accessed holistic advice, the watchdog said.
In 2016, the FCA’s Financial Advice Market Review recognised that robo advice had a key role to play in reducing the cost of advice and developing new ways to engage consumers.
It was hoped that advice services would be automated and made accessible online, where the recommended course of action is generated by an algorithm.
Although assets in the sector rose 700 per cent, the FCA found there were a number of reasons why the take-up of automated services had not been greater.
These included a lack of confidence, particularly prevalent in the first-time investors robo-advice is aimed at, and a lack of human contact. The FCA found most respondents would want to speak to a person, particularly in the initial onboarding process.
The regulator added: “Our research found that many consumers do not feel comfortable using a service that relies on algorithms rather than a professional considering their individual circumstances.
“Lack of brand awareness is still a barrier for consumers. People are aware of financial scams and are wary of investing their money with companies that they have not heard of before.”
Change ahead
However, the watchdog said there were signs of progress in the market.
According to the FCA, firms with automated advice services reported that the financial year 2019/20 was their strongest to date.
Investors providing funding for robo advisers also believed there was scope for growth and continued to provide funding for firms that were yet to make a profit, the regulator found.
The FCA’s own advice unit had also been successful in pushing robo advice forward, with 65 firms accepted to the sandbox to develop new models to date.
Established banks have started to rear their heads into the robo advice space, while other firms have started to offer hybrid models.
The regulator also found that demand for robo-advice was likely to grow in the future. Although only 1.3 per cent of adults have used such a service in the last 12 months, some 32 per cent of consumers with £20,000 or more in investable assets indicated they would take digital advice in the future.
The FCA pledged to continue to support the development of automated advice.
imogen.tew@ft.com
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