Beware the ‘robo advisers’, investors are warned
Digital start-ups are trying to fill the gap left by financial advisers, but without the same protections, finds Sam Brodbeck
Investors are unwittingly depriving themselves of vital consumer protection by handing their money to so-called “robo advisers”, the City watchdog has warned. Dozens of online-only investment services have emerged in the past few years, offering slick services and lower fees than traditional financial advisers and wealth managers. Nicknamed “robo advisers”, these firms bring down costs by using software to automate the work usually done in face-to-face factfinding meetings. They have filled the gap left by high-street advisers, whose numbers have plummeted after a ban on commission was introduced in 2013.
Since then there has been growing concern that people who require the help of professionals to manage their money are not getting the advice they need. Politicians and the Financial Conduct Authority (FCA) have been encouraging firms to fill the “advice gap” and avert a situation where millions make costly mistakes with their money.
But now the FCA is worried that this new breed of digital firms is not clearly explaining to customers exactly what they are paying for and to what extent they are protected.
The regulator published a damning first review of the burgeoning market last month. It found that most of the firms it reviewed gave customers “unclear” information over the level of service and provided “potentially misleading” details of charges.
The watchdog also said the majority of providers did not hold up-to-date information about their clients and were poor at identifying vulnerable customers.
To most investors, getting “guidance” will not sound very different to getting advice. But the distinction under FCA rules is important.
Regulated advice means getting a personalised recommendation over a course of action involving your money – whether to invest in fund x or y, or whether to invest at all, for example. “Guidance”, on the other hand, may be simply helping to narrow down a range of options, leaving the client to decide what’s best. With guidance you have far less protection if investments turn sour.
Wealthify, a robo service backed by insurance giant Aviva, said it “clearly discloses” to customers during the sign-up process that it does not offer advice or recommendations.
Online wealth manager Netwealth offers a “hybrid” service, which allows customers to choose between going it alone or getting advice on a one-off or ongoing basis.
Nutmeg, the oldest robo adviser in Britain, is also the largest, with more than 50,000 investors. Shaun Port, the firm’s chief investment officer, confirmed that Nutmeg had been visited by the FCA and had made changes to its disclosures as a result.
Nutmeg’s customers choose