Response to joint Comitteee Discussion Paper on automation in financial advice
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As a general comment, while we take account of the ESA’s considerations around the possible advantages attached to the automation in financial advice, we would also like to highlight that a complete assessment of the opportunity to introduce or develop such a service should duly pay attention on the possible risks attached to that. In this sense, we appreciate the comprehensive analysis carried out by the ESAs on that specific aspect, which highlights the risks and possible difficulties, especially for consumers, stemming from the provision of such a service.
In relation to the assessment of potential benefits related to the provision of automated advice to consumers, we believe that some indications do not result to be accurate.
As a general remark, we would like to stress that automated advice is not the same as human advice: it is automated and, hence, does not necessarily take into account all specific circumstances of the consumer that would be helpful for the advice. Insofar, while it might be correct that the automated advice tools may come at a lower cost for the consumer, they cannot generally be considered as a substitute for human advice.
We also would like to highlight the following points:
- we do not share the view that automation of financial advice may give consumer greater motivation to act upon financial matters rather then in the case they were using human advisers. In general, we believe that personal relationships with advisers, even for less affluent consumers, make consumers closer to financial matters and that such a professional relation encourages interests and raises awareness in consumers (point 33, p. 16);
- In addition, it is to be assessed whether automated advice tools will grant access to a wider range of service providers, particularly in the securities market, as customers would be limited to utilizing services and products that are legally available in their jurisdiction (point 34, p. 16).
- To conclude, in our opinion, it might not be accurate to state that customers are able to obtain advice based upon the most up-to-date market information through automated tools. The investment solutions provided by these tools will often be constructed and rebalanced based on human inputs (whether that be in constructing the algorithm or changing the asset allocation of the portfolios recommended by the tool).
In addition, the absence of an on-going human relationship with the adviser can create cases where unsuitable advice is provided in a more long-term timeframe, in case material changes occur in the (financial) situation of the advised consumer and the advice was generated on the basis of information provided in the phase before the change occurred.
This also drives to stress another risk, which is the lack of an on-going relation with the consumer. This aspect is of crucial important for the investor protection and this is why MIFID II requires firms to indicate whether the advice is provided on an ongoing basis or not: to make the consumer aware of the fact that, in case of one-off advice, the suitability of the recommendation is not reassessed on a continuous basis and, thus, the advice may cease to be appropriate if changes occur.
1. Do you agree with the assessment of the characteristics of automated financial advice tools presented in this Discussion Paper? If not, please explain why.
NA.2. Are there any other relevant characteristics of automated financial advice tools?
NA.3. Are you aware of examples of automated financial advice tools being used in the banking, insurance, and/or securities sectors? Please provide examples, giving details of their operating process.
NA.4. Do you offer/are you considering offering automated financial advice tools as part of your business model? If so, please briefly describe: i) what type of entity you are, e.g., long established, start-up, a product provider, an intermediary; ii) the service you provide (e.g. to what extent do you integrate human interaction in the tool you provide?); iii) the nature of your clients; iv) your business model; v) who developed the automated tool (i.e. an external company or developed internally?); and vi) the size of your activity and/or forecast activity?
NA.5. Do you consider there are barriers preventing you from offering/developing automated financial advice tools in the banking, insurance and securities sectors? If so, which barriers?
NA.6. Do you consider the potential benefits to consumers to be accurately described? If not, please explain why.
Assogestioni welcomes the opportunity to respond to the European Supervisory Authorities’ Joint Committee Discussion Paper on automation of financial advice (JC/2015/080).As a general comment, while we take account of the ESA’s considerations around the possible advantages attached to the automation in financial advice, we would also like to highlight that a complete assessment of the opportunity to introduce or develop such a service should duly pay attention on the possible risks attached to that. In this sense, we appreciate the comprehensive analysis carried out by the ESAs on that specific aspect, which highlights the risks and possible difficulties, especially for consumers, stemming from the provision of such a service.
In relation to the assessment of potential benefits related to the provision of automated advice to consumers, we believe that some indications do not result to be accurate.
As a general remark, we would like to stress that automated advice is not the same as human advice: it is automated and, hence, does not necessarily take into account all specific circumstances of the consumer that would be helpful for the advice. Insofar, while it might be correct that the automated advice tools may come at a lower cost for the consumer, they cannot generally be considered as a substitute for human advice.
We also would like to highlight the following points:
- we do not share the view that automation of financial advice may give consumer greater motivation to act upon financial matters rather then in the case they were using human advisers. In general, we believe that personal relationships with advisers, even for less affluent consumers, make consumers closer to financial matters and that such a professional relation encourages interests and raises awareness in consumers (point 33, p. 16);
- In addition, it is to be assessed whether automated advice tools will grant access to a wider range of service providers, particularly in the securities market, as customers would be limited to utilizing services and products that are legally available in their jurisdiction (point 34, p. 16).
- To conclude, in our opinion, it might not be accurate to state that customers are able to obtain advice based upon the most up-to-date market information through automated tools. The investment solutions provided by these tools will often be constructed and rebalanced based on human inputs (whether that be in constructing the algorithm or changing the asset allocation of the portfolios recommended by the tool).
7. Are you aware of any additional benefits to consumers? If so, please describe them.
NA.8. Do you see any differences in the potential benefits arising for consumers in each of the banking, insurance and securities sectors?
NA.9. Have you observed any of these potential benefits to consumers? If so, please provide examples and describe the kind of benefit that has accrued.
NA.10. Do you consider the potential benefits to financial institutions to be accurately described? If not, please explain why.
We would like to stress that, in relation to what stated at point 43 (p. 19), we believe that it might not be so accurate to say that automated advice may also enhance the quality of the service provided to consumers, especially when it comes to up-to-date advice on a real time and ongoing basis. As stated in our reply to Q6, the advice will often be based on human inputs, so that the effect on quality enhancement could not be so distinctive.11. Are you aware of any additional benefits to financial institutions? If so, please describe them.
NA.12. Do you see any differences in the potential benefits arising for financial institutions in each of the banking, insurance and securities sectors?
NA.13. Have you observed any of these potential benefits to financial institutions? If so, please provide examples and describe the kind of benefit that has accrued.
NA.14. Do you agree with the description of the potential risks to consumers identified? If not, explain why.
First of all, we share the ESA’s consideration that, due to a lack of interaction between consumers and advisers, given the automatic nature of the service provided, the risk that investors are not able - or assisted enough - to understand the key information related to the service is not negligible.In addition, the absence of an on-going human relationship with the adviser can create cases where unsuitable advice is provided in a more long-term timeframe, in case material changes occur in the (financial) situation of the advised consumer and the advice was generated on the basis of information provided in the phase before the change occurred.
This also drives to stress another risk, which is the lack of an on-going relation with the consumer. This aspect is of crucial important for the investor protection and this is why MIFID II requires firms to indicate whether the advice is provided on an ongoing basis or not: to make the consumer aware of the fact that, in case of one-off advice, the suitability of the recommendation is not reassessed on a continuous basis and, thus, the advice may cease to be appropriate if changes occur.