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Can a robot give financial advice?

New FCA guidance sets out how robot financial advisers should work

New guidance setting out how artificial intelligence services can give streamlined financial advice has been published by the Financial Conduct Authority (FCA). 

As part of its Financial Advice Market Review, the FCA looked into ‘streamlined advice services’, which give financial advice tailored to a client’s specific needs.

Its recommendations outline how these advice services might operate in the future, laying the groundwork for robot financial advisers powered by artificial intelligence.

Here, Which? explores how robo-advice could work in the future, and how technology is already influencing the way you manage your money.

Find out more: financial advice – the ins and outs of using a finanical adviser

Would you take investment advice from a bot?

For online investment advice, the future has already arrived. A number of online services currently help investors decide how to allocate their money. Some of the most popular include:

  • Nutmeg: an online service that suggests a diversified investment portfolio tailored to the personal information you provide. Nutmeg will continually rebalance your portfolio in line with your risk profile, unless you change your preferences.
  • BestInvest: a platform to manage your investments online, offering research and analysis tools. Further advice is provided via phone by advisers.
  • RPlan: a tool for DIY investors, with the choice to choose, track and review investments online.
  • Barclays Financial Personality Assessment: this tool helps you identify your attitude towards risk and your composure levels. Users can then work with an adviser to build a portfolio.

Which? also offers an investment portfolio tool that helps you understand your risk profile and consider how that may affect your investment strategy.

Most of these tools offer “streamlined” investment advice, meaning they won’t offer the full range of services as a professional adviser. Generally, users fill in a short questionnaire about their circumstances, goals, and attitude to risk. From this, the tool recommends an investment plan, and a recommendation on how to spread your portfolio based on the amount of risk you’re willing to take. Many will automate the investment process for you.

These streamlined services won’t consider as much information as a professional adviser, and they’ll pick from a smaller pool of investment options than an independent financial adviser too.

The FCA’s advice on ‘streamlined advice services’ may allow online services to recommend specific products and actively manage your investments for you. However, the regulator confirmed that such services would need to ensure products offered were ‘compatible with the needs and objectives for the target market’. It added that firms must not lower the level of protection available to clients.

Find out more: how to manage your investment portfolio – your options for tracking your returns

Robo-advice on mortgages

Aside from investing advice, online services are also helping people make another major financial decision – applying for a mortgage.

‘Robo-advisers’ are online platforms that offer a similar service to mortgage brokers, but entirely digital. Users provide information to a bot powered by artificial intelligence, which then offers mortgage products aligned to their circumstances.

A handful of robo-advisers for mortgages are currently operating in the UK market – Trussle and Habito are both up and running, while MortgageGym was granted a license from the FCA earlier this year.

Find out more: getting a mortgage – everything you need to know about applying for a home loan

Saving by app

Technology is also changing the way we make everyday transactions, such as transferring cash into a savings account.

Chip is a smartphone app which analyses your spending patterns and automatically transfers your money into a savings account, based on what it thinks you can add afford to save. While its standard interest rate is 1% AER, users can earn up to 5% AER by referring friends to the app.

Plum operates in a similar way, analysing your transactions and recommending savings, though it communicates via Facebook Messenger. You can also nominate a savings ‘mood’ – for example ‘ambitious’ or ‘eager’ – to determine how much the app will try to save for you.

Cleo analyses your spending and suggests improvements to help you save more, but it won’t move your money for you.

Find out more: would you let a bot control your savings? – see our reviews of these apps

Banking technology

In recent years, high-street banks have faced a new challenger in the form of online-only, branchless banking providers – including Monzo, Starling and Revolut.

While each of these challengers offer different services, they all operate exclusively via an app that allows you to see your expenses, categorised for easier tracking. They also tend to offer eye-catching perks, such as free overseas withdrawals.

Find out more: challenger and mobile banks – Which? reviews the key players

Technology and banking security

A number of security innovations are poised to be introduced by high street banks in coming years. These include the use of ‘behavioural biometrics’, virtual one-use only cards and dynamic CVV codes that change by the day.

The video below explores some of the most ambitious projects set to change the way banks secure our money.

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