Ducks overlooking outside scenery on bridge.

Back to the Future: FAMR could result in automated distribution, not robo-advice

04 November 2015

'Back to the Future day' prompted myriad summaries of where technology has got us and where we're headed.

FinTech and robo-advice, in particular, are the current buzzwords in financial services. October also saw the big launch of the FCA and Treasury's Financial Advice Market Review (FAMR). Although Tracey McDermott reassured the Treasury Select Committee that the intention with FAMR is not to revisit RDR, its main aim is to fill the 'advice gap' left by RDR.

FAMR will inevitably draw heavily on tech-based solutions and the regulatory regime may yet be reformed to accommodate them. I doubt anyone believes the 47 pages of FCA guidance from January on "clarifying the boundaries" between the 7 types of advice identified offers a workable solution.

I predict a bifurcated market: automated distribution to fill the advice gap in the mass affluent market; and, professional, client-centric, RDR-compliant, advisory and discretionary services for HNWs. Robo-advice – already a slightly oxymoronic term – will be useful in both markets but cannot be the complete solution in either.

As product providers and asset managers develop their robo-propositions, they will leverage their incumbent brands and use their well-resourced distribution and marketing teams to compete with - or acquire - smaller, new entrants looking to develop independent, client-centric advisory solutions. That is why Keith Richards has reportedly encouraged those at this week's PFS symposium to take this "opportunity for every financial adviser to contribute and influence change for the future".

RDR was well-intentioned and works for the upper end of the market that is willing and able to pay for personalised advice. It has, however, left the lower end of the market without advice and facing the choice between 'financial exclusion' (or, at least, investment exclusion) or a new variant of the distribution-driven model of the past. If the latter, reports about Hargreaves Lansdown's market research into whether its execution-only customers will pay £100 for an online advice service are an encouraging sign for the future.

I hope excitement about shiny new robo-advice solutions won't cloud FAMR's view of the opportunities and threats for both ends of the retail investment market.