The Financial Conduct Authority has been told to conduct a review that compares the outcomes of automated advice to traditional face-to-face appointments.
In its latest report on the pension freedoms, the Work and Pensions Committee said “technological innovation has a clear role” in filling the advice gap. However, it recognises that automated advice is not widely accepted by consumers; a recent survey by Which? found that 58 per cent of people would not currently want to accept advice recommendations from a computer.
Therefore, it suggests the FCA undertake a review on outcomes from automated advice, with a view to reassuring potential customers that it can be a useful service. It believes that the key to combatting concerns about automated advice is the assurance that a reduction in cost is not at the expense of quality.
“There is a clear role for automated services in providing cheaper advice. Public scepticism as to whether it is reliable and trustworthy must first, however, be addressed. This is best done through empirical evidence. We recommend the FCA conduct and publish a review comparing consumer outcomes from face-to-face and automated advice,” the report said.
The Committee referenced the FCA’s 2016 Financial Advice Market Review (FAMR) that found automated advice could have “a key role to play in reducing the cost of advice and developing new ways to engage consumers.”
Following the FAMR report, the FCA created a dedicated unit to support the development of automated advice models. Their evidence referenced a firm offering an automated advice model for a fixed charge of £10, in comparison to their average face-to-face charge of £150 per hour. Liverpool Victoria has also developed an online, fully regulated advice service for £199, a significantly cheaper option than most financial advisers, the Committee noted.
“The FCA was unable to point to any explicit examples of comparisons they have done between automated and face-to-face advice, although they stressed that quality requirements remained the same, regardless of the advice channel. Financial advice will not be for everyone, particularly those with the smallest pots, but more people would benefit from accessing high quality, independent advice before deciding how to invest their life savings,” the report explained.