The use of automated advice services (or ‘robo-advice’) is a hot topic in the financial services industry. The FCA has approved the use of the technology in a report published following the Financial Advice Market Review (“FAMR”).
FAMR was launched seven months ago in light of concerns that the market for financial advice in the UK was not consumer-friendly. It aimed to identify the barriers to consumers obtaining financial advice and the potential remedies to making the market more accessible. The FCA has concluded in its final report that robo-advice (i.e. online forms which suggest services and products to consumers based on the information they enter) could be instrumental in driving down the costs associated with accessing financial advice. It has also recommended that fully automated advice models should play a major role in developing new ways to engage consumers.
FAMR has backed the development of mass market automated advice models, whether fully automated, hybrid models or developed as tools to aid the face-to-face advice process. To support innovation and the development of robo-advice technology, FAMR has proposed the following initiatives:
1. Establishing an Advice Unit
The Advice Unit would form part of the FCA’s existing Project Innovate, which encourages innovation in the financial services sector. The aim of the Advice Unit would be to support the development of automated advice tools by providing firms with a general toolkit which they could use when developing their automated services model.
This toolkit would include best practice on methodologies for testing and evaluating automatic advice models and standardised testing scenarios which firms could use to evaluate the effectiveness of their automatic systems. The FCA and Financial Ombudsman should also provide bespoke guidance to individual firms on the regulatory implications in respect of the technology being developed.
As part of the process of sharing feedback and best practice, FAMR recommends that the FCA should publish regular anonymised reports outlining results from tests with various firms. A pre-condition to firms accessing the Advice Unit should be agreeing to inclusion in such a publication.
The aim is to pilot the Advice Unit from autumn 2016.
2. Using Robo-Advice for Fact-Finding
FAMR has recommended the use of technology in the longer term to support fact-finding (i.e. the assessment of the customer’s knowledge and experience, financial situation and investment objectives) when firms are providing financial advice. Although fact-finds include a host of objective information, such as the consumer’s age and investment history, they also include more subjective information, such as the consumer’s attitude to risk, which may be more difficult to verify.
FAMR recommends that the FCA should launch a consultation on guidance, with the aim of providing more clarity on the standard information required in the fact-finding process. This will assist in informing the financial services industry on the role of technology in fact-finding in the longer term, with the aim being to develop a standardised, portable fact-find service.
The consultation on the fact-finding guidance is anticipated to take place in early 2017.