On the topic of robo advice, regulators and advisers seem to have found common ground.

Echoing the concerns raised by various agencies regarding the use of robos and their ability to be fiduciaries, 47% of investment professionals responding to the CFA Institute’s newest FinTech Survey said the quality of financial advice could be hurt by expanded robo use and another 38% of respondents said they thought investors could see higher rates of fraud and misselling.

Investment professionals foresaw the greatest risks in flawed algorithms, but privacy and data-protection concerns also ranked high. In open-ended answers, some respondents said robos would be unlikely to account for “behavioral biases” in clients, and that the risks of “herding” behavior were greater as investors were directed toward passive strategies.


"The concern relates to how the algorithm that provides the product recommendation is designed and how it operate," says Sviatoslav Rosov, an analyst in the capital markets policy group at CFA Institute. "Are investors being given the right choice of products that are suitable for their needs versus products that are preferable from the provider’s standpoint (via commissions or otherwise)?

"Additionally there may be biases in the way clients respond to the online questionnaire about their circumstances and needs – individuals tend to understate their true risk tolerance. Without human interaction, client suitability may be imprecisely assessed."

Despite these concerns, respondents said they thought robos would have the greatest impact on the financial services industry over both a one-year and a five-year time horizon, while 89% said they thought the proliferation of automated financial advice tools would have a positive effect on consumers’ investment costs.

Respondents also thought the effects of the robo trend would not be distributed evenly across the industry.

High-net-worth investors, institutional investors and ultra-high-net-worth earners were seen as being less impacted than the mass affluent, due to the types of advice less wealthy investors tend to receive. “The higher the wealth, the more likely that respondents do not think investors will be affected by automated financial advice tools, which are not yet capable of offering complex, tailored advice,” the report’s authors wrote.

The CFA Institute sent the study to 3,803 of its members globally and received 775 valid responses. The study found geographic differences as well.

Respondents from the Asia-Pacific and Europe, the Middle East and Africa were more likely to say robo solutions would positively affect consumers in the areas of access, choice and quality of service than respondents from the Americas.

Meanwhile respondents from the Asia-Pacific were less likely than their global counterparts to see risks in misselling. Researchers speculated that recent enforcement actions in the U.S. and Europe increased awareness and were behind the divergence.