Posted: 5th November 2015

The FCA’s 2013/14 Retail Distribution Review has had a major impact on the finance industry, not least in improving the transparency of firms’ activities and tackling inherent product bias. However, the assertion that it has priced the mass market out of advice is an industry-wide concern.

These claims have been substantiated on a fairly consistent basis due to a number of banks and other large firms dropping their advice functions between 2011 and the present day.

Back in September 2013, former FCA Chief Martin Wheatley questioned whether, if they are no longer able to offer it free as part of a sustainable operating model, this meant banks were ever giving proper advice prior to the thematic review:

“You can question whether it was advice or if it was sales… most banks and advisers have worked out you can’t provide a fully advised service. Full advice service is five to six hours of work and that costs… therefore, we’re seeing less of it.”


In the pensions market, those with large pots to invest can both afford – and gain the most tangible benefit from – advice. Here, the minutiae of policies have greater impact over the long term, and traditionally, this leads to the purchasing of advice. Those with large pots to invest may well have an ongoing relationship with an adviser.

However, the prospect of a perceived ‘long-term, costly relationship’ with an IFA is something that discourages or even precludes consumers with small to medium sized pots.

In its first report on pension freedoms since April’s changes, The House of Commons Work and Pensions Committee found that; “provision in the middle ground between free guidance and traditional but expensive face-to-face independent financial advice is woefully inadequate”, which adds substantial fuel to the fire.


Robo-advice. Ignore the term’s slightly dystopian undertones, the concept is far friendlier, and many industry experts are expecting it to come to the fore in the coming years.

It’s an umbrella term for the automated services which use algorithms to offer financial advice based on information the consumer has provided. Clearly, the automation of processes has the potential to lessen cost, but does it provide adequate information? This is the crux.

Early incarnations of such systems have invited criticism for their lack of flexibility and inability to incorporate and process more granular information about the user, such as their unique personal circumstances.

In fact, mention automated or robo-advice systems in many industry circles and scepticism abounds. Its rise in the US could be a contributing factor to this. Many doubt whether the sorts of systems designed to work in the more defined regulatory landscape of the US can work here in the UK. This is due to grey areas in how the FCA has historically defined ‘advice’ and the liabilities that come with information considered as such.

Debate continues as to what constitutes advice, but with terms like “focused”, “generic”, “limited”, “regulated” and “simplified” advice being referenced in the FCA’s FG15/1 paper in January, it’s understandable that firms are unsure on whether to forge ahead with even the most preliminary level of robo-advice implementation.

So does this mean robo-advice is a trend which will eventually go away?

Not quite. As Finance and Technology Research Centre director Ian McKenna points out, it’s not an all or nothing situation. Robo-advice has a unique advantage, he says;

“[Robo-advice] is not prescriptive as to what level of engagement you have with the client… To create a full-blown automated advice system you need very powerful software. Plus, very few consumers are ready for a fully automated process. So for the majority of organisations, a model that allows you to automate part of the process is going to be the right way forward.”


At the very least, it’s clear that an advice gap exists in Britain, and something will evolve to fill it. With this in mind, it’s never too early for firms to start thinking about how to leverage technology to make their low value work more efficient.

Think about how best to make the changing landscape in regulation – where customer outcome is key – work for your firm. Not all customers have complex circumstances, and the great advantage of a technological solution is that human advice can step in as soon as a customer needs more specialist assistance. Technology can alert advisers and/or firms to this need early in the process if automated fact-finding is not sufficient. If given the right level of attention by firms, this approach may, in time, bring advice provision back into the realms of affordability for middle Britain.

Although consumers may not be ready for full blown robo-advice, and indeed full blown robo-advice may not be ready for consumers, the process of evolution is certainly underway. The successful firms of the future will be those who are able to utilise tech to streamline their advice processes, saving costs while managing the consumer’s needs more effectively.

Conversely, with almost all industries moving towards a more technological approach, it’s a real possibility that financial organisations holding this type of innovation at arm’s length will fall behind the curve. Is a hybrid approach actually robo-advice? Perhaps not, but forward-planning and assessing opportunities to use technology to your firm’s advantage in administration is surely preferable to looking back and regretting opportunities missed. The exact moment at which ‘using technology’ becomes ‘providing robo-advice’ is almost besides the point.

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