1st June 2014
Would you be happy taking financial advice from a computer programme where previously you might have insisted on face to face contact with an IFA or at least human assistance by telephone.
The financial watchdog, the Financial Conduct Authority is now holding out the distinct possibility that some form of advice may be automated as it considers a number of important reforms to the sector.
The reasons for taking this dramatic course are pretty clear. A root and branch retirement reform has just been announced that places huge responsibility on people to manage their own pension cash when they get to retirement.
At the same time, the system in which financial advice was paid for by commission has been pretty much outlawed. While not all advisers have cranked up fees in response, many do now insist on either an hourly fee, which can sound very expensive to those in middle incomes and is certainly not to everyone’s taste, or on a minimum amount of investable assets – often upwards of £100,000.
In essence, there is huge potential demand for advice, but it may be too pricey for many people.
Hence the following recent speech from the chief executive of the financial watchdog Martin Wheatley. Among other things he said: “What impact is technology likely to have on areas such as automated advice? Scientists are heralding the advent of learning algorithms and self-improving artificial intelligence capable of previously unimaginable and impossible feats of accuracy and forecasting.
“What, if anything does all this mean for dispensing investment advice in the years to come? Can it be automated to deliver returns and security for consumers with straightforward needs? And how then does the regulator and industry respond when technology is disruptive? Or, if firms instead prefer more traditional, face-to-face methods of support, where do the limits lie?”
Of course, this isn’t a million miles away from where some investors are already. They may, for example, use a huge range of online tools. They may use a lot of tools but get help from an adviser. There are already very many processes, though arguably not in pensions and investments, where people make their own way through a series of on-line decisions, to arrive at a result.
But for the moment, the line between regulated advice and information is firmly policed. Those given information cannot be told -“We recommend you do this” by any company.
If this changes, will people accept, regulations allowing, the machine’s recommendation of a course of action?
It won’t come in the form of a robot in a pinstripe suit. But we think the watchdog really needs to ask consumers/investors themselves what they want and whether they will be happy to follow instructions from an algorithm about their financial affairs.
At Mindful Money, we suspect that a telephone back up service staffed by real people may be wanted by many investors who have relatively moderate pension savings and don’t have an adviser. Maybe the regulations for simplified advice and guidance should be designed around this.