On 21 May 2018, the FCA updated its web page on automated investment services.

The web page refers to two FCA reviews which looked at firms offering automated online discretionary investment management (ODIM) and firms providing retail investment advice exclusively through automated channels (auto advice), where customers do not interact with human advisers and the advice is given on a one-off basis (when the customer first engages with the firm).

The FCA reports on its findings which include:

  • the service and fee-related disclosures at most ODIM firms were unclear. Some firms did not make clear whether their service was advised, non-advised, discretionary or non-discretionary. Some firms also compared their fee levels against peer services in a potentially misleading way. For example, they compared a non-advised, non-discretionary service with a discretionary service solely on a cost basis without explaining the difference in the nature of the service;
  • many firms offering ODIM services did not properly evaluate a client’s knowledge and experience, investment objectives and capacity for loss in their suitability assessments. Some firms did not ask clients about their knowledge and experience at all, as they felt their service was suitable for all individuals regardless of their investment knowledge and experience;
  • the FCA expects automated investment services to meet the same regulatory standards as traditional discretionary or advisory services. This means taking a proportionate approach to information gathering while maintaining the appropriate level of client protection;
  • in some cases, auto services recommended a different transaction to the one that took place at the end of the advice process. The FCA saw examples where clients could disregard advice given by the automated offering without any safeguards or risk warnings to prevent or challenge this;
  • most ODIM firms were unable to show that they had adequate and up-to-date information about their clients when providing an ongoing service. Firms need to make sure client information is not materially out of date, inaccurate or incomplete when undertaking a decision to trade;
  • firms providing ODIM services generally have provisions embedded in their online customer journey tools to filter out clients who were unlikely to have their needs met by the service. Firms that rely on such tools in their filter process should have appropriate systems and controls to make sure that the tools are fit for purpose and produce satisfactory results; and
  • there seemed to be little consideration of auto advice-specific risks in firms’ governance processes. Awareness of the need for adequate stress testing and cyber-security was mixed.

The FCA reminds firms that they should consider Finalised Guidance 17/8: streamlined advice and related consolidated guidance which sets out, among other things, the regulator’s expectations regarding streamlined advice and fact find processes.