Financial experts are looking at automated robot advisers with suspicion and claim losing the human touch opens consumers to making risky decisions.
Financial companies like robo-advice because it is cheap.
IFAs are not so keen because they charge a client around £1,000 for pension advice, but a robo-adviser fee for the same review is about £200.
At a conference discussing the role of robo-advisers organised by the Personal Finance Society, a Financial Conduct Authority (FCA) regulator responsible for advice standards has suggested removing human professionals could be bad for consumers.
The Personal Finance Society represents the interests of 35,000 qualified financial advisers.
Robo-advice risks
At the conference, the FCA’s Ed Smith explained automatic advice could help thousands of savers and investors who cannot afford to consult an IFA – but the option comes with a set of risks.
“Four things about robo-advice worry us as financial regulators,” said Smith.
He listed the causes of concern as:
- Misunderstandings over financial reports given by robo-advisers
- Consumers not taking to the notion of robo-advice
- Consumers with too little cash opting for robo-advice rather than seeing an IFA
- Consumers suffering from behavioural biases
“Human advisers can see their clients and can make sure they do not get into financial problems at face to face meetings,” said Smith.
“This filtering of unsuitable clients is an important part of the advice process.
Advisers are perturbed
“We also need to look at the questions a robo-adviser asks to make sure they are not loaded and lead consumers in an inappropriate direction.”
Smith did confirm the FCA agreed in principle with robo-advice because regulators could work through the algorithm and understand how advice was applied to a consumer’s circumstances.
“Robo advice is cheap and convenient for companies and consumers,” said Smith. “This is a development that could bring good financial advice to those who could not otherwise have afforded to take it.”
IFAs commenting on robo-advice fear that they will have to pay more as a levy for misselling to regulators if robo-advice makes inroads in the UK.
“Robo-advice is just one of several digital services the industry is looking at to help customers,” said a Personal Finance Society spokesman.
“Some firms are greeting this with open arms while others are certainly perturbed.”
