“Our technological powers increase, but the side effects and potential hazards also escalate.”
This quote from Alvin Toffler, the American futurist and writer, rings true if you consider how technology has disrupted industries in recent years. Whether it is music streaming services, the evolution of driverless cars or online gambling, the legal and regulatory (or safety-related) side-effects on these industries are too many to count.
The financial industry is somewhat behind the curve, but it is swiftly catching up. Christopher Woolard, the executive director of strategy and competition at the Financial Conduct Authority, recently noted that the financial services industry has so far been “quite resistant” to technology, but he noted “real change” is coming. He added, “From a consumer’s perspective, this is maybe quite an exciting time where we begin to see change in the financial services industry.”
However, these technological evolutions, while in some respects exciting, are also set to cause the FCA a bit of a headache. On the one hand, the FCA has a role to encourage alternative technological developments through the likes of the Regulatory Sandbox and Innovation Hub, and on the other hand it needs to ensure consumers’ interests are still protected.
On the FCA’s radar at the moment is the need for clearer guidelines to differentiate guidance and advice. John Griffith Jones, the Chairman of the FCA, recently noted that the “remorseless march of technology, was making the line between advice and guidance harder to distinguish.” One of the main causes of this blurring is the emergence of robo-advice. The primary issue with robo-advice is that it removes the traditional distinction between an adviser and an investing platform.
Confusingly, for the consumer, many ‘robo-advisers’ tend to offer guidance rather than regulated advice. This has led to criticisms that customers don’t understand what exactly they are buying, what it costs and what happens if something goes wrong.
The FCA is trying to assess the situation in an environment where the zeitgeist anxiety du jour is that robots are about to take our jobs. According to many reports, financial advisers are becoming a threatened species as robo-advice is set to take over the entire market.
The problem with this argument is that machines are less likely to replicate social interaction and the need for human-to-human contact any time soon. Financial advice is inherently a social and relationship-dependent vocation. This is particularly true when it comes to more sensitive and complex needs such as planning generational wealth.
If the FCA is looking for a sign of things to come to help create their new guidelines they need look no further than across the pond at the US model. In the US market robo-advice didn’t achieve any real scale until it was integrated within a multi-channel model. On that side of the Atlantic Ocean, people use robo-advice alongside telephone and face-to-face services. Given this dynamic the lines between guidance and advice are clear when the user of the service has the option to call or arrange a meeting for full advice.
The struggle for the regulator is trying to modify guidelines to fit an ever evolving industry. However, whatever they decide it is important they factor in that it takes time for the relationship between technology and an industry to develop and guidelines will constantly need to reflect that.
In his speech the FCA chairman said there is no “silver bullet” to coping with the change. Indeed, technology is a double-edged sword. It’s a powerful tool that can engage consumers and be an enabler for the industry, but at the same time those consumers must be protected in a new reality. It is a natural evolution and it is important we do not lose focus on the real crisis, which is the lack of financial advice, guidance – or help – available for many UK consumers.
Steven Levin is CEO of Investment Platforms at Old Mutual Wealth.
Hear more from Steven on this issue when he joins the panel to discuss "Technology, transparency and regulation: how will customers engage in future?" at the ABI’s Long-Term Savings Conference on 4 July. Find out more here.