As the FCA conducts its Financial Advice Market Review, are they heralding an era of automated investment advice for consumers? Could low cost and low entry thresholds hold the key to encouraging consumers back to wealth management in a post RDR environment characterised by large groups of investors not paying for investment advice and holding cash?
Excerpt from FCA overview:
The report recommends a number of measures for the FCA to take forward which are aimed at giving firms the confidence to deliver streamlined advisory services focusing on specific consumer needs. It should also consult on measures to support firms developing guidance services that help consumers make their own investment decisions.
FAMR also highlights the increasing role that technology can play in creating a more engaging, cost-effective advice market. It recommends that the FCA extend the work of Project Innovate and establish a unit to help firms develop their automated advice models.
This means exploring ways in which the cost of providing existing high-quality models of advice can be reduced for firms and therefore for consumers. It means ensuring firms have the confidence to deliver guidance and advice services to meet the diverse needs of consumers. Firms should also be able to innovate and use new technologies to improve and expand their offering to different sets of consumers.
Section 3.4 Costs and the role of technology
As set out in Chapter 2, providing face-to-face advice has significant fixed costs, which can drive commercial decisions concerning where to focus services.
This section considers ways in which certain costs could be reduced to allow firms to deliver less expensive advice to consumers, without compromising the quality of advice provided to consumers.
There was widespread agreement that technology, including fully automated advice models, has a key role to play in reducing the cost of advice and developing new ways to engage consumers. Even where consumers continue to seek interaction with an adviser, most respondents agreed that technology can complement advisers by reducing the time involved in, and therefore the costs of, the advice process.
Feedback to the Review suggests that technology and innovation can play a big role in: reducing the cost of advice, ensuring consistently high standards of advice and increasing the accessibility of advice for consumers. Some respondents suggested that since these models are fundamentally different from face-to-face advice, they also present different challenges for firms and for consumers. Therefore early regulatory engagement with firms looking to develop these models will help ensure that firms get these models right at the outset and that the models produce the right consumer outcomes. Respondents also suggested that as automated models are potentially more scalable than face-to-face models, it is important that models with mass market impact can be developed and tested in a way which allows firms to understand the potential impact across a range of customer circumstances and receive feedback on the regulatory implications of their model.
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