As increasing numbers move to conduct their affairs online it is probably reasonable to assume that investors – particularly first-time investors – will opt for a similar path.
Clearly the dynamics of the financial services market are changing and RDR has speeded up the process. In the eyes of some, it has prompted the current ‘advice gap’ and led to disenfranchised consumers who are no longer able or willing to pay for full advisory services. In response, however, we are seeing the emergence of a raft of online-only digital investment propositions.
Nutmeg.com operates a site that looks like the UK’s first online discretionary investment management company. Users can reduce their fees by inviting friends to join and every six months fidelity is rewarded with lower fees or reward points. And those clients looking for interaction can phone or pop into an office. RPlan goes so far as to offer all facilities to investors on an execution-only basis for £5 a month – including fund and portfolio research provided by Rayner Spencer Mills and platform services from Cofunds.
The interesting point is how these types of business model can be operated efficiently within the rules of the new regulator. Performance alone is insufficient when it comes to advising consumers where to invest. Suitability is crucial. Risk assessment on a client-by-client basis is something the regulator will be keen to keep a close eye on, as the same rules apply to online propositions as for traditional advice.
If the service is restricted, this must be made clear. If there are various costs involved, the consumer has to know these upfront. Good advisory businesses also know about double-checking. Client notes need to be read back to the customer providing further explanation of decisions reached and clarifying matters that may not have been wholly understood.
While new technology must surely help people obtain better access to investments – both simple and complex – distributors still need to have the appropriate controls in place. The regulator is going to be very interested in learning about distribution models or offerings that do not meet client needs in respect of suitability and risk checking. Indeed, we should not rule out a thematic review of online, focused advice that would complement the FCA’s proposed review of non-advice and execution-only business.
The Tax Incentivised Savings Association is liaising with the regulator to clarify how online, direct-to-consumer and execution-only distribution models can work, establishing the dividing line between the provision of rich information and the step across into advice, with all its associated risks and requisite controls.
Increasingly, forward-thinking advisory businesses are adding alternative advice models, with some moving from execution-only websites to the provision of online advice. A key factor here is the eradication of client visits and lower administrative overheads. This reduction in overheads means that it is possible to take financial advice to otherwise disenfranchised customers.
Of course, interestingly, not all consumers want advice. A good number will prefer to look after their own affairs and, let us face it, getting started is simple. All you need is a computer and an internet connection to begin investigating, buying and selling financial products.
However, making the right decision is not easy. The vast array of products and services, and a host of charges and charging structures demand rigorous homework to find the best value.
As fund providers and platforms move to clean and ‘super-clean’ share classes, some confusion is inescapable. Yet consumers who pick their own dud investments will have only themselves to blame. Suffice to say, online financial services are with us. Embrace it.
Tony Vine-Lott is director general of the Tax Incentivised Savings Association
