The digital advice market could flourish under the Financial Conduct Authority’s proposals for reforming the advice-guidance boundary, according to Ross Godlonton.
The head of product at Moneyfarm says the proposed reforms could prove to be the “missing ingredient” for a market that has been slow to come off the ground.
A number of digital advisers have launched in recent years but many, including Investec’s Click and Invest business and Moola, have since closed their doors after they buckled under financial pressure.
In a Q&A with FT Adviser In Focus, Godlonton outlines why the FCA’s proposals for targeted support and simplified advice could be the answer to the market’s woes and why they could be particularly attractive to building societies.
FTA: What is your view of the FCA’s advice-guidance boundary review?
RG: We appreciate any development that facilitates easier and more affordable access to investment advice and guidance for consumers.
The proposed changes are likely to encourage companies to invest in services that provide a larger segment of consumers with the confidence needed to transition from saving to investing.
This is especially true for services that are currently too expensive to administer or pose untenable regulatory risks for companies.
The recognition of the potential for technology to scale guidance and advice is positive, striking a balance between addressing consumer needs and ensuring commercial viability for businesses.
FTA: What was missing in the proposals?
RG: The exclusion of automated/robo-advice due to its purported inability to attract a large customer base raises questions.
We would argue that the options presented in the review are symbiotic to automated/robo-advice and could potentially serve as the missing ingredient to enhance their adoption.
In our opinion, the proposals should consider how automated/robo-advice solutions can be augmented with support and simplified advice delivered by a human to help bridge the advice gap.
FTA: Which proposals do you consider most helpful for the UK market, which will be consigned to the dustbin?
RG: Although further clarification of the boundary is welcome, it may not significantly impact consumers with limited financial knowledge and experience.
Providing factual information alone only works for the confident delegator. Consumers with limited financial knowledge and experience tend to ask what they should do and companies might not be able to give them the answer they are looking for.
Targeted support will enable companies to go a step further than they do today by suggesting a specific product or course of action based on “people like you”.
Simplified advice also shows promise as it will allow companies to provide a personal recommendation to the consumer without the overhead and friction of a complete and thorough fact-finding process.
