Robots can never replace the human touch

"We’ve already seen that robo-advice can lack sophistication; some offerings are little more than online forms."

This announcement removes a big stumbling block for so-called ‘robo-advice’. Compared to some other financial products, there are unique barriers to automated services in the mortgage market, but the FCA’s continuing consultations on how financial advice should be defined suggests it’s open to looking again at the rules.

It’s also got the public on its side, particularly among the young. A recent survey by investment group Legg Mason found 85% of UK millennials said they were comfortable with robo-advice – the highest proportion in the world outside the US.

As a result, the big high street banks and retail investment managers are already well underway in developing their robo-advice offerings for various products. Given the go ahead by the FCA, mortgages won’t be that far behind.

But is this good news for borrowers? In many cases, no; if these developments aren’t handled well, some borrowers are going to lose out. We’ve already seen that robo-advice can lack sophistication; some offerings are little more than online forms. Even at its best, the robo-advice market can’t serve all borrowers. In fact, in trying to increase access to financial advice, the regulator and government arguably risk undermining another one of their policy goals: financial inclusion.

As the FCA’s paper on the topic in May noted, many consumers still face barriers to accessing financial services – whether it’s the 1.5 million with no bank account or the growing number of elderly who face a mortgage market where 60% of lenders set a blanket age limit for loans. Robo-advice won’t help these people, nor will it help the 3.8 million households without an Internet connection.

It’s also unlikely to help the self employed. Mortgages are the most common source of difficulty for them when it comes to accessing financial products, according to the government’s own figures. Half of those applying for a mortgage in the last five years felt that being self-employed had caused difficulties.

There are plenty of other examples too: people who simply have complex or even adverse credit histories due to life events such as a divorce. It may be perfectly responsible to lend to these people, and the loans may well be affordable for them, but conventional credit scoring models won’t reflect that. Far from helping, robo-advice and standardised, automated processes are likely to make things worse for these people. They need tailored underwriting that allows the lender to truly understand their situation and make informed, responsible decisions about them.

These sectors of the market – like others – need greater innovation to ensure that advice can be provided cost effectively and as widely as possible. But, more than most, these people need a truly intelligent – not an artificially intelligent – approach. For the foreseeable future, that’s likely to mean retaining the human touch.