16 million people are trapped in a 'financial advice gap' - robo-advisors could be the answer

Far too many people aren't getting the advice they need before purchasing financial products and may be taken advantage of, according to the Financial Conduct Authority (FCA).

In its Financial Advice Market Review (FAMR), published on Monday, the FCA says that up to 16 million people could be trapped in a "financial advice gap" - they need advice but can't afford it.

The report notes that two-thirds of retail investment products in the UK are bought without professional advice, which is up a third from 2007.

The problem may stem from a ban in 2013 which stopped financial advisors from offering free advice to customers and being paid by commissions from the product providers.

The FCA solution is for more "streamlined" and "informal" advice, and that could take the form of so-called "robo-advice" - computer-generated recommendations based on online financial questionnaires. Here's the report:

The FAMR believes that creating an environment that supports firms in delivering 'streamlined advice' within the MiFID regime will have a positive effect on the market. This is particularly the case for online automated advice models that have the ability to deliver advice in a more cost efficient way.

Robo-advice is already a reality. Platforms like Wealthfront and Betterment in the US have proved hugely popular in the US and in the UK, the likes of insurer LV= have launched their own robo-advisor offerings.

BlackRock, one of the world's largest fund managers, last year also acquired online-only FutureAdvisor and in January asset manager Invesco bought automated investment manager Jemstep.

The Royal Bank of Scotland (RBS) is poised to cut 550 jobs from their investment and protection divisions, according to the Financial Times, with plans to utilise "robo-advisors" in their place to save money. The automated systems would offer customers advice based on a series of questions and responses.

The FAMR report also said people should be able to be able to access their pension pots to pay for financial advice, which would be offset by the gains in purchasing worthwhile products:

This will ensure that consumers can access financial advice at a key milestone in their lives and feel confident in making financial decisions as they approach retirement," the report said. This would give "millions" of people better access to affordable financial advice "that meets their needs at every stage of their lives.