The Financial Conduct Authority (FCA) has conducted a review of automated investment processes and found then to be falling well short of the standards required.
In many processes investors simply answer few investment experience and risk profiling questions and then presenting an investment such as an investment ISA with a ‘model portfolio’ got e.g. a ‘medium risk’ investor.
The FCA suggests that automated services are not clear to investors on whether they are offering advised, discretionary, non-advised and non-discretionary services. Many fail to check an investors experience and even more do not check what existing investments a client has. In many cases, it may be that an investor’s existing investments were more suitable and the automated investment service should have been redirected away to seek advice or guidance before investing.
Many models also claim they are not offering ‘advice’ when in fact, indirectly, a personal recommendation has technically been given meaning that it is advice and must meet normal advisory requirements.
The FCA said: “We expect automated investment services to meet the same regulatory standards as traditional discretionary or advisory services".
Many will know that we have been working on a ‘robo advice’ development for a number of years. We have avoided rushing into the market just to get an automated investment to launch. We have spent much of our time working on our advice engine to be able to analyse what a client already has before moving on to investing new money, starting a new pension or insurance. The easy part is setting up a new plan, the difficult part is analysing what a client has, what their goals are and what their experience to ensure a suitable solution is offered that meets normal advised regulatory standards.