The FCA is increasingly recognising that robo-advice could help in extending customer access to advice, particularly in relation to "simplified advice", and appears keen to explore the simplified advice process as a potential solution in addressing the advice gap. Simplified advice is not a defined term in the FCA Handbook but has been adopted to describe streamlined advice processes which aim to address straightforward consumer needs and which do not involve analysing the consumer’s circumstances that are not directly relevant to those needs.

Most recently, in the call for input for the FAMR, the FCA and the Treasury asked respondents what role technology such as robo-advice could play in improving access to financial advice. The final report on FAMR, which was published on 14 March 2016, identified extending access to advice as a key goal. In order to increase the use of simplified advice models, the FCA is to develop further guidance on what does and does not amount to regulated advice and how simplified advice models need to comply with existing regulatory requirements.

The FCA is also to set up an advice unit to help firms develop automated advice models. The advice unit will build on the FCA’s previous work in creating an innovation hub for technology start-ups and incumbents developing financial technology (fintech) services. The Treasury’s involvement in FAMR has also given the FCA the ability to change the legislative framework in relation to financial advice in ways that may help reduce barriers for fintech services such as robo-advice.

EU regulators are also taking notice and, at an EU level, the Joint Committee of the European Supervisory Authorities (ESAs) launched a discussion paper in December 2015 on automation in financial advice, which highlighted the potential benefits and risks to consumers and to financial institutions of robo-advice (www.eba.europa.eu/documents/10180/1299866/JC+2015+080+Discussion+Paper+on+automation+in+financial+advice.pdf). The ESAs are seeking to determine what, if any, regulatory and supervisory actions may need to be taken to mitigate the risks of automation in financial advice while at the same time harnessing its potential benefits.

There are a number of robo-advisers being set up in EU member states, such as Italy and the Netherlands. The Netherlands introduced its own expanded version of the UK’s retail distribution review (RDR) in 2013, which includes a ban, similar to the UK, on inducement-based schemes for independent and non-independent advice, but the Dutch authorities extended the policy to include execution-only and portfolio management activities. Italy implemented a ban on discretionary managed fund platforms receiving commission in 2007, but has not developed a national regime comparable to the Dutch or UK RDR regimes.

In the US, robo-advisers have developed over a number of years, with US regulators such as the Securities and Exchange Commission (SEC) identifying the perceived benefits of robo-advice, including lower cost, ease of use, and broad access for customers. However, US regulators have recently been keen to communicate the risks and limitations in using automated investment tools to customers. For example, the SEC and the US Financial Industry Regulatory Authority issued a joint alert on 8 May 2015 that provided investors with a general overview of automated investment tools and provided key tips or issues to consider before using these tools (www.sec.gov/oiea/investor-alerts-bulletins/autolistingtoolshtm.html).

In Australia, robo-advice has also been subject to strong regulatory focus from the Australian Securities and Investments Commission (ASIC). ASIC is strongly focused on consumer protection and considers that robo-advice services should be subject to the same regulatory regime as conventional human-based advice services. This is reflected in its consultation and accompanying draft regulatory guide on robo-advice that was released on 21 March 2016, in which ASIC expresses the view that there is no need for law reform to better facilitate the provision of robo-advice (http://asic.gov.au/regulatory-resources/find-a-document/consultation-papers/cp-254-regulating-digital-financial-product-advice/).

However, it seems that the Australian government has a different view. In March 2016, the Australian Treasurer announced that the government will introduce a new system to regulate fintech start-ups that will better facilitate the building of new businesses using a new "regulatory sandbox" in which entrepreneurs can test their new disruptive business models in a controlled environment (http://fintech.treasury.gov.au/australias-fintech-priorities/). Australia implemented its own RDR regime, the Future of Financial Advice (FOFA) in 2012. FOFA, like the UK RDR, has prohibited advisers from charging fees through products in the form of commission. However, it still permits the payment of adviser fees out of the product held by the client with the client’s consent. As the fees are paid out of the client’s money and not the product provider’s own money, the payment is not characterised as commission.

Robo-advice is an emerging model across the globe but risks and concerns have been identified by regulators and the industry alike. In particular, concerns exist that the automation of financial advice beyond simple financial planning tools may give rise to new or increased risks compared to the traditional model of human professional advice.

Some commentators warn that consumers may misunderstand the advice or the nature of the service provided to them without the benefit of a professional adviser to support them through an advice process, or may not understand the limitations in using the automated tools when compared against personal human advice, particularly in more complex product areas.

Another perceived risk is the potential for limitations or errors in automated tools to the extent that they cannot be as intuitive as a human adviser. For example, many automated advice tools are based on decision trees and are not traditional investment advice in the sense that they do not take into account the customer’s objectives and goals, and how their circumstances may change over time. Some see this as having the potential to lead to a risk of automated mis-selling of products and it may take years to identify bad advice provided through these tools. This concern also relates to the perceived risk associated with the widespread use of automated advice tools, in that a significant volume of consumers could end up transacting in the same way in the same financial products and services, and therefore lead to a "herding" of risk.