Robo-advice: The hidden dangers lurking under the bonnet
Tim Sargisson assesses the efficacy of robo-advice and warns that when it comes to technology things can, and do, go wrong
I was interested to read Treasury and City minister Harriett Baldwin’s comments about whether the automated advice offerings (commonly called robo-advice) promoted in the Financial Advice Market Review (FAMR) will end up creating problems for consumers.
Suffice to say that the minister remains upbeat about the efficacy of ‘robo-advice’ -as befits somebody who spearheaded the FAMR last year.
We are told that automated advice models will be subject to exactly the same, high regulatory standards as other forms of advice, and the FCA has said in its recent business plan it is to establish an advice unit that will help firms develop their robo-advice models.
The FCA will provide firms with regulatory support and feedback as they develop their models, and ensure that robo-advice solutions are developed with consumer protection at their core.
Views on robo-advice are currently ‘ten a penny’, but I do believe that John Lawson, Aviva’s head of retirement solutions policy, is closer to the mark when he says robo-advice is a ‘long way’ from taking off, and that it will be years before robo-advice develops the sophistication it needs to offer anything comparable to what human advisers do: combining the necessary knowledge and soft skills.
‘Disruptive Innovation’
At its heart, robo-advice is a further example of ‘disruptive innovation’ creating new markets by empowering new categories of customers – harnessing new technologies to develop new business models and exploiting old technologies in new ways to provide a profitable solution.
However, while it is helpful to have the regulator ‘running the rule’ over robo-advice propositions, things can and will go wrong with an automated process, as evidenced by a recent visit to my local Shell garage. What has this to do with robo-advice? Well, Shell has launched a new service – Fill Up and Go – for its customers.
For those of you unfamiliar with the service, you pull up to the pump and use your mobile to scan the QR Code. This code is unique to each pump and once acknowledged on your phone it allows you to do exactly what it says – ‘fill up and go’.
There is no need to queue to pay an attendant, you are sent a receipt to your phone and you simply drive away. Or at least that is the theory.
In practice ‘robo-petrol’ doesn’t always work. More specifically, and crucially, the attendant’s till does not acknowledge the transaction. This means that, as far as they are concerned, you are doing a ‘runner’.
Cue the harassed attendant chasing after the car and the ignominy of dealing with the accusation in front of a queue of motorists, all in a hurry, who cannot pay for their fuel until your transaction has been cleared. Explaining that the fault is with their system and not your moral compass tends to fall on deaf ears.
The point I am making is that it is far better to have a harassed pump attendant in your rear-view mirror than the FCA and, while robo-advice offers the potential to enfranchise significant numbers of new clients, the costs of getting it wrong could be very expensive indeed.
Shell has deep pockets and will have invested significant sums in its system to shave a few precious minutes off the amount of time drivers spend on the forecourt.
As I said earlier, things can and will go wrong, even with the best thought out, most risk-assessed process.
Published on 21st April 2016
