Financial consumer group says robo-advisers are failing investors
Robo-advice services fail small investors, according to research conducted by the Panel for Boring Money for the Financial Services Consumer Panel. Many firms that use online investment and advice services fail to use language that small investors understand. In addition, such services fail to communicate whether they are providing regulated advice or unregulated guidance, and do not disclose costs in a transparent manner. It is rare that they state clearly whether consumers would be able to go to the Financial Ombudsman Service for recourse should anything go wrong. Many who use these services are looking to invest the cash released under new pension rules.
The Financial Services Consumer Panel has today published research and a position paper on the consumer experience with online investment and advice services (often called ‘robo’-advice).

The research, conducted for the Panel by Boring Money Ltd, concluded that many online investment firms failed to:

Communicate clearly whether they were providing regulated advice or guidance;

Disclose costs and charges in a way that allowed consumers to understand how much they would be paying and for what;

State clearly whether consumers would have recourse to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS) should things go wrong;

Use language that consumers understood.

The research also found that consumers in the sample did not understand the difference between regulated advice and guidance.

The Panel recommends that:

The FCA clarifies and enforces strongly existing rules designed to address the problems identified in the research, whether or not regulated advice is being provided;

The FCA leads an industry and consumer working group to develop simpler, more consumer friendly, language to be used consistently across the sector; and

The FCA should ensure firms quoting all-in fees are complying with the current rules on costs and charges.

Sue Lewis, Consumer Panel Chair said:

“More and more people with relatively small amounts of money to invest are turning to online investment services, many of them with cash they have released under pensions freedoms. They need to know exactly what they are buying, what it costs, and what happens if something goes wrong. Most online firms are not giving them this information clearly, most of the time. It is obvious these firms do not have a clue how to communicate in a way their customers understand. The FCA should enforce its rules in this area vigorously, whether firms are giving regulated advice or not, before more people who can ill afford it lose out.”

ENDS

MEDIA ENQUIRIES:

Cemile Turker (Consumer Panel): 020 7066 3426

NOTES TO EDITORS:

The Consumer Panel is a statutory body under the Financial Services Act 2012. The Financial Services Authority originally established it in December 1998. The Panel advises the FCA on the interests and concerns of consumers. The Panel’s membership is drawn from a broad range of backgrounds with expertise including market research, law, financial services industry, financial inclusion, European Regulation, financial regulation, consumer advice, campaigning, communications, compliance and later-life issues. The emphasis of the Panel's work is on activities that are regulated by the FCA, although it may also look at the impact on consumers of activities outside but related to the FCA's remit. More information about the Panel's work is available on its website: www.fs-cp.org.uk or via its LinkedIn and Twitter accounts. The research report completed by Boring Money Ltd on behalf of the Panel is titled ‘Assessing online investment & advice services’ and can be found here The Panel’s position paper Online investment and advice services – the consumer experience’ and can be found here The FCA’s existing rules on investment sales and advice can be found in various parts of the FCA Handbook, with different provisions applying depending on the nature of the service provided by the firm. Rules include: what information firms must disclose to clients before providing a service so that the client understands the nature and risks of the service and type of designated investment being offered, information about costs and associated charges and providing information about the Financial Ombudsman Service and FOS. Further detail can be found in Annex 2 of the Panel’s position paper.