The Financial Conduct Authority has raised concerns that financially illiterate, older men are most likely to refuse robo-advice even though this group has a high chance of sitting within the advice gap.
In an insight article, published on its website on Thursday morning, the UK regulator outlined research it conducted with 1,800 individuals representative of the population that presented participants with advice from an algorithm.
In 57% of cases the robo advice was rejected and this varied little depending on the quality of advice presented.
But variations did occur depending on the demographics of those involved with polarisation at the extremes, whereby 30% of respondents refused every piece of advice recommended by an algorithm.
‘Older, male and less financially literate’
The FCA labelled this group a “hard-core of refusers” and said they tended to be “older, male and less financially literate”.
The insight article said: “Older consumers may be facing some of the most important financial choices of their life – how to use their pension freedoms, whether to opt out of certain pension schemes, consolidate pension pots and perhaps plan for possible social care. They also have the smallest opportunity for correcting any poor judgements.
“The costs of mistakes among this group are high both for themselves and for wider society. Proponents might be hoping that this is a group where robo advice can offer broad and affordable solutions. But it may also be the group where robo advice will face the most resistance.”
Similarly, 10% of respondents accepted every piece of advice offered up by the algorithm regardless of quality.
One of the strongest predictors for whether a person was likely to accept the robo advice was based on their general level of trust for large corporations. Those with high trust in large corporations accepted robo advice in 70% of cases. Those with low trust in corporations accepted robo advice only in 35% of cases.
Women and people up to the age of 34 were also more likely to trust robo advice.
FCA jokes that men don’t like asking for directions
The bulk of people who rejected robo advice were most likely to turn to an adviser as an alternative, according to the FCA research.
This was selected in 72% cases with women more likely to choose this preference. Friends and family was the next most popular option, chosen by 21% of respondents, who were more likely to be young, of lower socio-economic status, less trusting of banks and have lower financial literacy.
Although only 7% of robo-rejecters said they would prefer to rely on their own judgement, this group had a “distinct” demographic, according to the FCA, being 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 article said, but the FCA pointed out 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”.
A long way to go before robo-advice is embraced
The article concluded that while there is a generational component to robo-advice pick-up, there are other factors such as basic trust in financial corporations, socio-economic status and consumers’ trust in their own judgement or that of their friends and relatives.
“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 article said.
“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.”
