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FSA’s simplified investment advice

05th October 2011

Peter Smith, head of investment policy for the Financial Services Authority, expressed his concern that “simplified” automated investment advice systems, which are typically used to help people in difficult financial positions, could actually end up causing more problems than they solve.

It would only take one error in an automated system to cause widespread losses across a professional’s client-base. For example, if this were the case with a large firm in the south it could potentially affect thousands of people in places such as Chichester, Bognor and Havant.

“If a mistake is built into a system, it could be replicated many times,” said Smith. “It is a concern.”

The FSA warned of other dangers inherent in the automated investment advice process. “The automated systems need to be built in such a way that investments are a final part of the process,” it said. “Decision trees need to be sophisticated to stop people ending up with an investment product when they should not have one.”

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