Robo advice has been hailed as a solution for widespread and affordable financial guidance, but research into consumer attitudes from the Financial Conduct Authority (FCA) has suggested those who might benefit most may be least likely to trust it.

A new article from the regulator has found substantial resistance among consumers to robo advice, identifying a hardcore of ‘robo-refusers’, who have something of a disposition to reject advice from an algorithm.

Written by Karen Croxson, the FCA’s head of research; Chris Burke, a scientist in the Behavioural Economics and Design Unit; and Maura Feddersen, a behavioural economist in the same unit at the FCA, the paper noted that these robo-refusers may well be the very people who might need financial advice most.

The FCA recruited a nationally representative sample of 1,800 individuals to explore attitudes towards robo advice and potential underlying drivers. Participants were presented with hypothetical situations in which someone has been offered investment advice from a robo adviser; they were then asked whether they would recommend accepting or rejecting the advice.

The trials were conducted online and along the way individuals were assessed for their own financial literacy and a range of other personal factors, including loss aversion, key personality traits and standardised measures of trust in corporations, banks and other people.

In an overall majority of decisions – 57 per cent - the robo advice offered was rejected.

Poor robo advice, where the advice was a mismatch to the stated objective and risk appetite, was rejected in 58 per cent of cases. Higher quality robo advice, that closely matched the stated aim and risk appetite of the hypothetical investor, was rejected in 56 per cent of cases.

“What made the difference between acceptance or rejection of robo advice, at least for these hypothetical investment scenarios, appeared to be the consumers themselves,” the authors wrote.

“As might be expected younger consumers were more likely to accept robo advice, with a marked drop off in acceptance among the over 55s.”
Another factor that came through was gender, with women more likely to accept robo advice than men, but one of the strongest correlations centred on trust.

The research assessed each participant’s general level of trust in large corporations – finding that those with high trust in large corporations accepted robo advice in 70 per cent of cases, while those with low trust in corporations accepted robo advice only in 35 per cent of cases.

The survey also asked those who had rejected robo advice what they would recommend doing as an alternative – consult a human financial adviser; seek advice from friends or family; or trust their own judgement.

The most common option indicated - chosen in 72 per cent of cases - was to recommend advice from a human financial adviser. Women were more likely to indicate this preference.

The next most popular option among the robo rejecters was to ask advice from friends or family, an option chosen by 21 per cent. These individuals were more likely to be young, of lower socio-economic status, less trusting of banks and have lower financial literacy.

“Combined with the other factors we found to be associated with relying on personal networks - lower socio-economic status, lower financial literacy, lower trust in corporations - we may be able to see here the outline of a divide in the younger generation between those more advantaged and more comfortable with technology and intermediaries, and those less financially capable, but also less comfortable with tech and placing trust in financial intermediaries,” the article explained.

“This raises the concern that those who may be most in need of advice - lower socio-economic status and low financial literacy - may be least likely to embrace support through robo-advice or any other form of professional guidance.”

Those who rejected robo advice in favour of the third option - trust own judgement - represented the smallest group just seven per cent of robo-rejecters. Again though, the profile of this group was distinct – more likely to be male and middle-aged, have trust in banks and have higher financial literacy.

“It is hard to draw any clear conclusion from this – aside from making the obvious joke that middle-aged men don’t like asking for directions,” the authors stated. “But it is worth remembering that higher financial literacy may not be the same as sufficient financial literacy, and that a little knowledge can be a dangerous thing if it leads to over-confidence.”

The findings suggested that robo advice has a way to go before it is embraced by the majority of consumers – outlining some of the obstacles to its widespread acceptance.

“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, liberating us from much of the hard work of tough decisions and potentially saving us from cognitive biases and limitations that may lead us astray in complex scenarios,” the piece concluded.

“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.”

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