FCA slams robo-advisers for misleading customers and failing to gauge their risk appetite
The Financial Conduct Authority (FCA) slammed online wealth advisers today, accusing firms of misleading customers on fees and failing to discern their needs.
In a critical report, the FCA warned that firms providing investment services through apps or web-based platforms must improve their governance practices.
It reviewed seven platforms offering automated online discretionary investment management (ODIM) – where the client gives the firm full responsibility to invest their money as it sees fit – and three providing investment advice exclusively through automated channels (also loosely known as robo-advice).
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The FCA found that the ODIM firms did not make it clear what fees they were charging, and some even compared their costs with those of peers which were offering a totally different service.
It also accused these firms of failing to evaluate clients’ investment experience and knowledge, and the risk they could afford to take on.
“Many firms offering ODIM services did not properly evaluate a client’s knowledge and experience, investment objectives and capacity for loss in their suitability assessments,” the FCA said in its report.
Some firms did not ask clients about their knowledge and experience at all, as they felt their service was suitable for all individuals regardless of their investment knowledge and experience.
Meanwhile the robo-advice businesses were lambasted for making assumptions about clients and not putting an adequate focus on “know your client” rules.
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“In general, we were not satisfied with the strength of information gathering about clients’ financial circumstances,” the FCA said in a statement.
“For example, some services failed to request or gather adequate information about customers’ debt and other outgoings.”
Added to that, some firms even allowed clients to disregard the advice and invest on their own whim.
The FCA said it would continue to assess the firms, and expected them and any new entrants to take on its recommendations.
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