Gina Miller, a vocal fund management critic and co-founder of low-cost fund provider SCM Direct, claims robo-advisers are losing money and that some could be breaching regulations.
She says UK robo-advisers are “wired” to lose money and may not be the “silver bullet” the Financial Conduct Authority (FCA) and Treasury are hoping for in terms of bringing financial help to people that do not or cannot get personal financial advice.
It costs a robo-adviser £180 (€213) to make just £17.50 net each year, Miller claims.
A “well-known”, but unnamed, robo-adviser reported costs in its latest available accounts of £9.42 for every £1 of revenue, Miller said.
The research also looked at a sample of ten advisers’ documentation and found performance illustrations and questionable statements regarding fees, among other issues, Miller said.
The research should cause the FCA “to urgently apply the brakes and systematically review this nascent sector”. The firm said that the FCA is instead planning to set up a robo-advice unit and allocating it £500,000.
“Our conclusion is that there is little evidence of robust innovation, as new robo-advisers appear to be fundamentally financially unviable and/or seem to be regularly flouting key FCA rules,” said Miller.
In a recent speech when she was acting chief executive of the FCA, Tracey McDermott said: “While it won’t be for everyone, [robo-advice] has the potential to be an extremely effective way of providing more affordable and engaging advice for many consumers.”
©2016 funds europe