At Lower My Charges.com we thought we would bring the attitude to risk topic to your attention. There seems to be a lot of people pushing this approach as a solution to address the financial planning gap in the UK hailing this as the answer to serve the mass market. And if it’s a concern in the US then it certainly will be a concern to our regulator in the UK.
Financial regulators in the US are warning investors and advisers to beware the limitations of automated investment tools.
Automated investment platforms are part of the ‘robo-advice’ sector in the US, though they are also being used by client-facing advisers as supplementary tools to guard against losing business to the traditional robo-advice giants, such as Betterment and Wealthfront.
Robo-advisers, described as a “class of financial adviser that provides portfolio management online with minimal human intervention” is a growing and not insignificant industry in the US, with the likes of Wealthfront running more than $2bn of investors’ money.
But it’s starting to gain traction in the UK and Europe.
Online simplified advice propositions such as Wealth Horizon, which uses Parmenion’s Interact software, have come to market, and is being made widely available to adviser firms. Moreover, wealth managers Investec Wealth & Investment and Towry have indicated forays into the space.
However, analysts have suggested uncertainty remains in the UK around offering simplified advice, and downplayed the impact it could have on larger wealth management propositions should it ever take hold. Numis, for example, said it “implausible” that UK robo-advice will have any operational impact on incumbents such as Hargreaves Lansdown and St James’s Place.
Automated advice Concerns
Definition from US regulators: “These tools range from personal financial planning tools (such as online calculators) to portfolio selection or asset optimisation services to online investment management programs (such as robo-advisors that select and manage investment portfolios).”
1 Be aware that an automated tool may rely on assumptions that could be incorrect or do not apply to your individual situation. For example, an automated investment tool may be programmed to use economic assumptions that will not react to shifts in the market.
2 Which questions the tool asks and how they are framed may limit or influence the information you provide. Be aware that a tool may ask questions that are over-generalized, ambiguous, misleading, or designed to fit you into the tool’s predetermined options
3 An automated investment tool may not assess all of your particular circumstances, such as your age, financial situation and needs, investment experience, other holdings, tax situation, willingness to risk losing your investment money for potentially higher investment returns, the time horizon for investing, need for cash, and investment goals.
Recently we tested a risk profiler and did my very best to be risk adverse but the psychometric questionnaire made it very difficult to be risk adverse and I ended up being a 5 on a risk scale of 1 to 10.
We were very concerned by this but what was more concerning is that the automated system appeared to be rigged to get us to buy an investment product.
It would seem the regulator has the same concerns
Would it not be better to stop finding shortcuts to circumnavigate the real issue which is to deliver good honest open transparent advice or guidance which is what the mass market consumer needs at a price they value by offering the highest standards of customer service and care which only a human being can deliver.
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