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

The Sunday Telegraph - Money & Business - - Front Page -

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

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