FCA lambasts automated advice and online IM services

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The Financial Conduct Authority (FCA) today strongly criticised the increased use by the financial services industry of automated advice and online discretionary investment management (ODIM) for their widespread suitability failings and “unclear charges”.

In its review update, published today, the British financial regulator assessed seven firms offering ODIM and three companies providing retail investment advice solely via automated channels.

FCA cited among its concerns that services and fee-related disclosures at most automated fund management firms were not clear. Some firms in the review did not make clear whether their service was advised, non-advised, discretionary or non-discretionary.

Releasing the update to its ongoing review, the FCA said: “The market for both ODIM and auto advice services remains at an early stage, with a number of firms expected to launch services over the coming year. We continue to encourage innovation in automated investment services.

Evolving market
“While this is an evolving market, our rules on suitability of advice apply regardless of the medium through which the service is offered. Assessment of suitability is the firm’s responsibility and our rules and principles apply equally to emerging automated offerings.”

The regulator added that assessment will become compulsory to ensure firms are complying with MiFID II: “We are committed to carrying out ongoing assessments of developing markets such as ODIM and auto advice. We expect existing firms and new entrants into the market to consider the issues in this article and take action where needed.

“Future reviews will include an assessment of how firms are complying with new requirements introduced by MiFID II and whether the cumulative impact of these important regulatory changes are working as intended.”

Commenting on the development, Jon Greer, head of retirement policy at Old Mutual Wealth. said: “Since pension freedoms, and the subsequent surge in defined benefit pension transfers, access to high quality financial advice is more important than ever. The Work and Pensions Committee recently called for a comparison of face-to-face with robo advice to better understand how automated investment and advice services to help fill the general advice gap.

“The FCA’s review into automated advice has noted some problems with these models, for instance how they can identify vulnerable customers. As these growing pains are worked through we are likely to see more hybrid models which combine the strengths of face-to-face advice with those of an automated process.

“The journey to 24/7 financial advice provided by robots has not been as swift as anticipated and this review offers an opportunity for reflection on how technology best fits within the financial advice industry. Findings from the regulator’s further investigations will be hotly anticipated.”

Author spotlight

Christopher Copper-Ind

Christopher Copper-Ind is editor-in-chief of International Investment. Before this, he was editorial director of The Business Year, from 2014 to 2017.