Today, the Financial Conduct Authority (FCA) criticised online wealth advisers. The regulator accused the firms of misleading customers on charges and not being able to discern their need.
In a scolding report, the FCA warned that the companies that provide investment services via web-based platforms or apps must improve their governance practices.
The regulator reviewed seven various platforms that offer automated online discretionary investment management (ODIM) – where the client gives full responsibility to the firm to invest their money as it sees appropriate – and three platforms that provide investment advice that is exclusive via automated channels (also loosely called as robo-advice).
The FCA discovered that the ODIM companies did not make it clear what charges they were charging, and some even compared the costs of their services with their competitors which were offering a completely different service.
The regulator also accused the firms of not being able to evaluate the investment experience and knowledge of the clients, and the risk that they could afford to take on.
In its report, the FCA disclosed: “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.”
It added: “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 robo-advice businesses, meanwhile, were criticised for making assumptions regarding clients and not placing enough focus on “know your client” rules.
In the statement, the FCA said: “In general, we were not satisfied with the strength of information gathering about clients’ financial circumstances.”
It added: “For example, some services failed to request or gather adequate information about customers’ debt and other outgoings.”
Also, some firms even allowed their clients to disregard the advice and invest in their own risks.
The FCA said that it would continue to assess the companies, and expected them and any new players in the industry to take on its recommendations.