FCA report tells robo advisors they have to improve
The Financial Conduct Authority (FCA) has delivered a damning report following its investigation into robo advisors in its quest to ensure that they meet the same standards as traditional advisers.
The regulator reviewed seven firms offering online investment services and three firms providing automated financial advice, and found substantial shortcomings on disclosure and suitability.
It accused online discretionary investment managers of inadequately warning customers about risk, being unclear on charging and failing sufficiently to understand customers’ needs before making advice or taking investment decisions on their behalf
‘did not properly evaluate a client’s knowledge and experience’
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.
The thorny issue of what constitutes advice and what is guidance was once again highlighted and 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.
‘fees for most firms were ‘unclear’
The regulator also challenged the platforms over their disclosure of charges, saying 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 automated advice services were also criticised for their handling of vulnerable consumers, highlighting that some offerings relied on the client to ‘self-identify as vulnerable’.
The FCA said it expected ‘existing firms and new entrants into the market to consider the issues in this article and take action where needed’ and warned that future reviews would assess how well companies were complying with regulations.