General insurance brokers and independent financial advisers are among those who may well be feeling under siege as various financial institutions prepare to launch automated advice solutions.
Middlemen have long been threatened by direct providers and now it seems computers will be making the recommendations. Technology has become the challenger and voices of dissent are being heard. But, are detractors reminiscent of the Luddites?
Notably, regulator the FCA supports more automation and importantly, there are also advantages for risk managers that could lead to a safer sales environment.
Automated advice means fully or partly operated online services and other technologically enabled models and it looks poised to become a commonplace distribution channel.
The aim, according to the regulator, is to reach the “unserved or underserviced.” These are people who would benefit from some advice, but they do not want to pay for it and they are also likely to be comfortable with purchasing online, as well as accepting a recommendation without face to face contact.
Clearly, cutting people out of the advice process reduces cost but at the same time, if the right question sets and tools are supplied, it should ensure suitability is addressed. Meanwhile, consumers should also have some choice as different approaches are under development - some models are ‘hybrids’ meaning they allow some contact with an adviser during the automated process.
The FCA spoke in favour of automated advice in its Financial Advice Market Review and in May 2015, set up a dedicated team, the Advice Unit, specifically to oversee this emerging market. Broadly, it wants to see more advice and more people be able to access this.
The regulator is also running ‘Project Innovate’, a so-called ‘safe space’ where products, services, models and delivery mechanisms in the automated market can be tested without immediately being subject to normal regulation.
Automated advice is set to be made available for a range of financial products such as investment, general insurance protection, mortgages, retirement income options and debt management. The workplace pension sector also provides scope for providers to offer other financial services products via a shared platform.
There is plenty of potential but not least in the early stages, smaller providers may feel on the sidelines since they will find it harder to make the necessary investment in technology and processes.
The prime candidates for auto advice provision are banks, but their track record in standard advice is poor. Time will tell if they fail to deliver with auto advice, but there is certainly less scope for things to go wrong.
If the proposition is right, then could also be the opportunity to restore public trust if key issues such as suitability and value can be addressed. The regulator has also said that consumer protection will still be core, with access to the FOS and FSCS remaining.
Risk managers seek consistency and there is certainly more scope for this within automated advice. It will still need careful monitoring – and data security issues must remain paramount, but performance should be easier to measure and technology is already proven in its ability to help manage compliance.
As for the independent intermediary sector, auto advice should not necessarily be seen in a totally negative light. IFAs, for example, tend to see fee-paying clients who want a personalised service and insurance brokers are increasingly focusing on commercial cover where they can offer clients a tailored approach depending on individual business needs. Intermediaries may also choose to also offer auto advice themselves as an alternative to their traditional offerings, once the technology becomes accepted.
The FCA is urging providers to ensure there is ‘genuine consumer benefit’ and it will be keeping a close eye on the fledgling auto advice sector as it moves into high streets, workplaces and living rooms. Change can be unwelcome to some, but from a risk perspective, having less human intervention when it comes to the mass market, could make life a little easier.