According to recent research from the Financial Conduct Authority, those that may benefit most from robo-advice are the least likely to trust it; more than half (57%) of a sample of 1,800 people surveyed nationally said they would generally not accept robo-advice, with just 2% difference in acceptance rates depending of the quality of the advice.
Poor robo-advice, defined as where the advice was a mismatch to the stated objective and risk appetite, was rejected in 58% of cases; higher quality robo-advice, which closely matched the stated aim and risk appetite of the hypothetical investor, was rejected in 56% of cases.
The FCA also measured participants’ financial literacy and their level of trust in large corporations, such as banks; of those with a low level of trust, just 35% accepted robo-advice, while those with higher levels of trust in large corporations accepted robo-advice in 70% of cases.
those that may benefit most from robo-advice are the least likely to trust it
Younger people showed higher acceptance rates with more than half of 18-34-year olds (53%) saying they would accept robo-advice compared with 37% of those 55+; women would be more likely to accept robo-advice than men, with consistent refusers of robo-advice tending to be older, male and less financially literate.
‘Older consumers may be facing some of the most important financial choices of their life, such as choosing how to use their pension freedoms, whether to opt out of certain pension schemes, consolidate their pension pots or plan for social care,’ the FCA said.
‘Advocates of robo-advice might be hoping that this is a group where they can offer broad and affordable solutions, but according to this research, this is the group where robo-advice is facing the most resistance.’
72% of consistent refusers of robo-advice said they would opt for advice from a human financial adviser over robo-advice. However, this may not always be a feasible option for those who are less affluent, and robo-advice can be a scalable way to provide them access to advice.
‘There is clearly huge potential for robo advice to become a major part of the financial landscape, offering great advantages in cost and convenience for many consumers,’ the FCA said.
‘What is less clear is whether it can solve the advice gap in the foreseeable future and whether ultimately those who may need decision support most will have faith in the algorithms of the future.’