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'Robo advice' is malfunctioning, says regulator

Financial Conduct Authority says online financial advice and investment services don't find out enough about customers' circumstances.

 
'Robo advice' is malfunctioning, says regulator
 

The Financial Conduct Authority (FCA) has blasted automated financial advice and investment services over suitability failings and 'unclear' charges.

The regulator reviewed seven firms offering online investment services and three firms providing automated financial advice, and found substantial shortcomings on disclosure and suitability.

The FCA found some investment services ‘did not properly evaluate a client’s knowledge and experience, investment objectives and capacity for loss in their suitability assessments’.

It added that some firms did not ask clients about their knowledge and experience at all.

After looking at automated ‘streamlined’ financial advice models, the FCA said: ‘Some services lacked adequate fact finding and 'know your client' focus, instead relying on assumptions about clients.

‘In general, we were not satisfied with the strength of information gathering about clients' financial circumstances. For example, some services failed to request or gather adequate information about customers’ debt and other outgoings.’

‘We saw examples where clients could disregard advice given by the automated offering without any safeguards or risk warnings to prevent or challenge this,' the report added.

The regulator also took the services to task over their disclosure of charges. It said fees for most firms were 'unclear', while some compared their charges against those of rivals in a ‘potentially misleading way’.

The regulator also highlighted that most online investment firms were unable to show that they maintained adequate and up-to-date information about clients.

The report also lambasted automated advice services for their handling of vulnerable consumers, highlighting that some offerings relied on the client to ‘self-identify as vulnerable’.

 

2 comments so far. Why not have your say?

Andrew Vincenti

May 22, 2018 at 15:06

And what is the regulator going to do about it? Another study no doubt as usual. Gimme a break, any one of us could have told them the advisers have shortcomings including unclear charges. Oxygen thieves!

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Novgorod

May 22, 2018 at 15:58

I'd be very wary of a robo-adviser managing my money. Whose there to fix the algorithm when starts doing silly things because the market is behaving in a way that it doesn't understand and loses you a ton of money.

These need more development.

If you don't trust human managed funds, you'd be better off with a collection of passive funds, which mirror their benchmark minus costs (should be very low).

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