Wealth Manager - the site for professional investment managers

Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

FCA: robo failing on suitability and clear charging

FCA: robo failing on suitability and clear charging

The Financial Conduct Authority (FCA) has blasted automated advice and online discretionary investment management services over suitability failings and 'unclear' charges.

The regulator reviewed seven firms offering investment and three providing advice, finding substantial shortcomings on disclosure and suitability.

Assessing firms against conduct of business requirements, the FCA found that many investment services 'did not properly evaluate a client’s knowledge and experience, investment objectives and capacity for loss in their suitability assessments'.

It added that some firms did not ask about clients knowledge and experience at all, falling foul of rules about on discovery.

After looking at automated 'streamlined' advice models, the FCA said: 'Some services lacked adequate fact finding and "know your client" focus, instead relying on assumptions about clients.

'In general, we were not satisfied with the strength of information gathering about clients' financial circumstances. For example, some services failed to request or gather adequate information about customers’ debt and other outgoings.'

In some cases, the FCA found, automated advice services recommended a different transaction to the one that took place at the end of the transaction.

The report added: ‘We saw examples where clients could disregard advice given by the automated offering without any safeguards or risk warnings to prevent or challenge this.

'This created uncertainty about whether the business was transacted on the advice of the automated offering, or on an execution-only or insistent client basis.

'Sometimes an adviser intervened in the automated process without recording the nature of the intervention. In these instances it would be difficult for firms to show the suitability of the advice provided.’

On disclosure, the regulator reported that service and fee-related disclosures at most investment firms were 'unclear', with some firms failing to clarify whether the service was advised, non-advised, discretionary or non-discretionary. Others reportedly compared their fees against peer services in a 'potentially misleading way'.

The regulator also highlighted that most discretionary firms were unable to show that they maintained adequate and up-to-date information about ongoing clients.

The report also lambasted automated advice services for their handling of vulnerable consumers, highlighting that some offerings relied on the client to 'self-identify as vulnerable'.

In its appraisal of overall governance, the regulator concluded: 'There appeared to be little consideration of auto advice-specific risks in firms’ governance processes.

'For example, awareness of the need for adequate stress testing and cyber security was mixed (this included considerations such as testing around sales volumes, developing action plans to address losses of connectivity or other eventualities, and continuing to test systems past-launch).

'There appeared to be confusion within some firms as to the nature of the auto advice service being provided. While some networks were able to show clear oversight of the auto advice proposition, other networks lacked clarity over how responsibilities were shared between the adviser and the network.'

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Tim Steer: fund managers will have to get 'stuck in'

Tim Steer: fund managers will have to get 'stuck in'

The second part of our film with former Artemis and New Star fund manager Tim Steer looks at how his profession has evolved over the past two decades.

2 Comments Play Tim Steer: how to spot a stock disaster coming

Tim Steer: how to spot a stock disaster coming

The former Citywire AAA-rated fund manager has written a book on 22 stock disasters and how forensic examination of annual reports could have spotted them coming.

Play CEO tapes: the gap between best and worst alternatives is stark

CEO tapes: the gap between best and worst alternatives is stark

In the final part of our series we take a look at the rise of illiquid investing and whether it really serves in clients best interests.

Read More
Your Business: Cover Star Club

Profile: why the world of wealth is fracturing

Profile: why the world of wealth is fracturing

The problem with wealth management, according to Robert Paul, London & Capital’s youngest ever partner, is that it is very antiquated.

Wealth Manager on Twitter