FCA Prepares for the Rise of Robo-Advisors

 The Financial Conduct Authority (FCA) has set out to encourage greater use of so-called “robo-advisors” in the hope that they will offer more help to a greater number of investors. Robo-advisors are websites that suggest appropriate investment opportunities based on the answers investors give to an online questionnaire, and it is hoped they will allay concerns about the high cost and limited accessibility of traditional financial advice.

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Lighter Regulations

The Treasury and City watchdog have now stepped in to set out a series of new rules aimed at making such financial advice more easily available, freeing online providers from the heavier regulations traditional financial advice companies must comply with.

The companies behind robo-advisor websites would be expected to offer streamlined advice to those with less complex financial needs and offer such investors funds that are suitable to their investment aims and risk tolerance. The watchdog also insists that online questionnaires be clearly worded and tailored to those who are not expected to have a strong pre-existing financial knowledge.

The FCA’s Advice Unit accepts proposals from companies that wish to set up robo-advice websites, judging each application according to their own strict eligibility criteria.

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An Alternative to Traditional IFAs?

While the FCA and the Treasury clearly hope that robo-advisors will benefit a greater number of individuals with less wealth to invest, it seems unlikely the traditional IFA will be replaced altogether any time soon. Traditional advice services may be considered safer by those who prefer face-to-face advice from a human being, especially when they know such companies are stringently regulated and have often invested in back office systems for IFAs such as those developed by https://www.intelliflo.com/.

Almost two thirds of all retail financial products are currently bought by individuals who have not sought any form of financial advice, while many people with under £100,000 to invest decide to choose pensions, retirement income plans and investments without consulting and IFA or robo-advisor. This is the issue the FCA and Treasury hope to address through their promotion of robo-advisor websites.

With a number of High Street banks including Royal Bank of Scotland, Lloyds, Santander UK and Barclays all looking into developing their own robo-advisor sites, it looks likely that more and more people will be able to take advantage of financial advice, whether online or in person.