The ability to accurately predict the future is a skill several individuals claim to possess. Appraising how markets will perform or constructing suppositions based on analysis of the macro-environment or consumer behaviour is a preoccupation of very clever and admirably remunerated individuals.
Unfortunately, predictions are simply informed guesses. Certainly, intelligence and wealth are not analogous to making accurate prophecies. Thomas Watson, the chairman of IBM in 1943stated with great confidence and intensity that, “I think there is a world market for maybe five computers.”
And modern entrepreneurs are not immune to making booboos when prophesying. Sir Alan Sugar proudly claimed in an interview in 2005 “Next Christmas the iPod will be dead, finished, gone, kaput”.
Perhaps the only prediction for financial services in 2016 is that change will occur. The metamorphosis will not be revolutionary, innovative or disruptive however. Change in financial services is focused on putting right the previous changes, through fatuous, perpetual strategic tinkering by inept regulators and Whitehall mandarins.
So, with a complete lack of anxiety in joining Mr Watson and Mr Sugar in making spurious, inept forecasts, below are my predictions for 2016 in financial services.
1. The Money Advice Service (Mas) will provide regulated advice.
The retail distribution review (RDR) is an enormous, expensive gaffe. Its most strident advocate must concede it has failed to achieve its fundamental objectives of lowering costs, making advice widely available through new channels and restoring trust in financial services.
The lack of advice channels has resulted in the regulator launching the Financial Advice Market Review (FAMR)to consider methods of delivering financial advice to those who cannot afford to engage with a financial adviser. The only tangible solution is for the Mas to provide regulated product-based advice in a safe harbour without the backing and costs of the Financial Ombudsman Service (Fos) and the Financial Services Compensation Scheme (FSCS).
2. The FCA will appoint Andrew Haldane as CEO.
The Financial Conduct Authority is still looking for a new CEO to replace Martin Wheatley, who was dismissed for arguably being too arduous on banks by bestowing billions in fines. It is apparent the current chancellor does not want a hard-liner, perhaps preferring a reformer who can instil innovation and reduce the complexity of regulation.
To that end, Andrew Haldane is the perfect candidate. Haldane is currently chief economist at the Bank of England. In 2014 he was named among the world’s top 100 most influential people by Time magazine. Mr Haldane’s view on regulation is that you don’t need complex laws to get the right outcome. According to Mr Haldane, “In financial regulation, less may be more.”
Mr Haldane is big fan of peer-to-peer lenders such as Zopa and Funding Circle, and would encourage new lending markets like crowdfunding in an attempt to move away from the current banking culture and to utilise distributed ledger technology.
3. Auto-enrolment will be a fiasco for small companies.
With millions of employees of large firms already enrolled into pension schemes, the government is proclaiming auto-enrolment a success.
Making relatively small pension contributions and expecting a reasonable pension pot at retirement is ludicrous. With the first year’s pension statements received, savers will soon realise the nonsensical schemes they have been hoodwinked into joining and hurriedly opt out.
Small firms are destined to flout the rules and they will continue to pay no attention in 2016. The problem is so acute that Work and Pensions Committee chairman Frank Field is already holding a review on the problem. It would appear the £44m Workie campaign has failed to convince small companies to enrol their employees.
4. The absurd Robo-Advice market will flop.
The product everyone is talking about in 2015. Undoubtedly, it is something new that investors have noticed, but very few are utilising. It is reasonably surprising the market has developed in the UK, when the pick-a-portfolio service has been available from the market leader, Hargreaves Lansdown for over a decade.
The fundamental reason advisers are launching robo-advice solutions is that it costs almost nothing to do so. Although robo-advice is certainly generating industry conversation, it is not remarkable. Having failed to gain traction in 2015,its demise will be swift in 2016.
5. Distributed ledger technology will disrupt platforms.
Basic banking services, electronic payments and investment platform custody charges remain obstinately high. The FCA is impatient to increase competition and reduce costs to consumers. The arena of investments remains a grating paradox, the costs of holding an investment is exponentially more expensive than the investment fund.
The average custody charge of 30 basis points is exorbitant compared to the tangible investment fund cost, which is possibly 0.07 per cent of the amount invested, this anomaly is predisposed for disruption. Distributed ledgers – first used with Bitcoin – will challenge the traditional platform models and their absorbent costs while simplifying administration and regulation.
Richard Bishop is a lecturer in financial services at Coventry University College and a practising regulated financial adviser.
