Is All the Talk Around Financial Robo-Advice Simply Just Hype?

In a recent report, the Financial Conduct Authority (FCA) identified an advice gap when it comes to those with modest savings or pension pots. A substantial proportion of the population has no financial plan and very little idea of how they will sustain themselves in retirement. They are put off by upfront fees for advice from IFAs which seem high when quoted as a lump sum. Rather than pay for advice, they don’t get any and hope for the best.

Is All the Talk Around Financial Robo-Advice Simply Just Hype

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The FCA hopes that the public will be able to use “robo-advice” output by automated systems provided by the financial services industry. These will be so cheap that the public won’t be put off by the cost.

Your Personal Robot Adviser

Basically what your personal robot will do is to ask a set of questions and then use a program to decide on the best options. It will then present them to you so that you can choose one.

The banks are going for this with gusto, with many of them currently building automated platforms. The robo-strategy has the advantage that as the customer makes the final decision, they can’t later complain that they were wrongly advised.

Reality May Be Too Messy for a Robot

However, the robo-hype is soon going to hit the messy reality of giving financial advice in Britain. As the Financial Times recently pointed out, the fact that a customer isn’t rich doesn’t mean their finances are simple. You have only to look at the complexities of the benefits, welfare and tax regime and the way it changes at every Budget. Software for IFAs from has to be constantly updated to reflect these changes so that the IFA can tailor their advice to an individual customer.

Add to this the lack of financial literacy in the UK. The FT quotes figures of 20% of people being unable to understand their bank statements. And 50% of the over-50s don’t understand share-based ISAs.

However, larger financial institutions are keen to embrace this model. They’ve seen insurance sites making us fill in our details and print out our own documents, and they’d like some of these cost savings.

Most of the UK population would rather visit the dentist than think about their financial future, robo-advice or not.