ROBOADVICE in the MiFID II ERA

2016/12/30

In the last year and a half I have been able to participate in different events on Robo advisors, as well as read many articles about it. I am a true believer in financial culture improvement of our society and for this reason at EFPA, we have been carrying out financial education activities for schools and professional colleges, led by volunteers. It is a process that entails a reasonable time to implement this knowledge and put it into practice.
With the rise of a new group of people called Millennial or generation Y, a term coined by Strauss and Howe. This segment will make financial decisions at a younger age, unlike its predecessors. Wim Mijs of the European Banking Federation (EBF) said this year: "I firmly believe in the need for more and better financial education as citizens will increasingly have to make individual investment decisions earlier in life."

At the same time, in EFPA we have certified thousands of professionals of the financial sector in the past 15 years. With the implementation of MiFID II, as of January 1st 2018, all professionals in the financial sector will have to be trained and certified. Training and certification is the key to success. This is a very important step that will help to mitigate the potential malpractice problems that the banking system has suffered in recent times. As IOSCO's former Secretary General David Wright stated, 'bad advice can ruin lives'. We must always take into account the influence that a financial advisor has on the lives of its clients. I do not think that the solution to improve this situation is via the potential cost savings of using the Robo advisors, but this situation must be dealt with more and better advice. Also, from the Fintech industry, it is argued that Robo advisors are a more economical solution compared to the traditional human advisor. Without a doubt, the costs are an important matter for financial institutions, or for our clients, but I am not convinced that cutting expenses in the advisory department will help to recover the sector’s prestige. The Fintech and specifically the Robo advisors are a legitimate business that come to stay, but it should never replace a human financial advisor. In addition, will the Fintech industry be responsible for dictating quality standards in asset management and advice? Are they going to represent the interests of the consumers? It is obvious that there is a conflict of interest between the evolution of this business and the protection of its potential users. The procedure requires the consumer to have high financial knowledge, computer skills and very clear idea of its financial needs. Therefore, the best users for this type of tool are certified financial advisors who can benefit from this algorithm to optimize some administrative and asset allocation procedures, but never to directly advice end customers. I believe that every precaution must be taken to safeguard the client's interest and patrimony. We must learn from the mistakes that have been made in the past, and be clear that users should have maximum protection, although they too, sometimes are not aware of it.

Karim Zouhdi, EFPA Executive Manager