To borrow from William Shakespeare, some data is born open, some becomes open, and others have openness thrust upon them.
In UK financial services, the open banking rules introduced in January 2018 give account holders control of their information and open up their data to numerous new companies.
There has always been a healthy amount of scepticism around giving away personal data and information – and for good reasons. But developments such as open banking have the opportunity to change the way industries use and share data.
Now that the initial hype has died down, there are exciting opportunities for investors, advisers and providers in the retail investment industry from open banking and open data initiatives.
While it is the banking sector that is likely to be most affected by the new regulations, investors, financial advisers, platforms and other providers also stand to gain.
At a roundtable Bravura recently hosted on the topic, industry experts identified several ways that these audiences will benefit from the new cornucopia of openness in financial services. We have explored three of these in more detail below.
1. Increase efficiency and drive down cost of financial advice businesses
There was a healthy 3 per cent increase in the number of financial advisers in 2017 according to data from the Financial Conduct Authority. At the same time, there was 18 per cent growth in the number of new clients paying ongoing advice charges.
- Open banking rules introduced in January give account holders control of their information
- Open banking can help increase efficiency of financial advice businesses
- Access to banking data could also allow firms to engage savers in the benefits of investing
There has been a lot of talk about the ‘advice gap’, but the focus has now shifted to addressing the ‘capacity gap’ – in other words, increasing the ability for advisers to work with more clients and thereby improving the access to advice.
Open banking can help increase the efficiency of financial advice businesses, which could in turn free up advisers’ time to focus on more value-added services, as well as raise the number and type of clients they work with.
Advisers already rely heavily on application programming interfaces to link various parts of their businesses, and will often use these APIs to link cash flow modelling tools to the back office and to suitability report-writing services.
Open banking will mean that data can be automatically fed to the adviser practice. Cash flow modelling is usually based on a client verbally explaining to an adviser how they have spent their money. Often, clients share bank statements, which leads to a lot of time spent manually putting the information into the fact find. Under open banking, the process can become more streamlined and efficient.
By harnessing these economies to lower the cost of advice, this should also make it more viable for advisers to service clients with smaller assets, and may even bring access to financial advice to those who need it most, such as people in debt.