InvestmentsOct 11 2016

Ten FinTech reasons why the advice gap will close

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I don’t think I have ever seen the industry so energised around grasping the opportunities that financial services technology represents and advice firms so interested in adopting technology that works for them. 

There's lots of work to do but in the medium to long term I have no doubt the landscape will look very different - and not for the reasons you might think! 

Here are 10 reasons FinTech will help close the advice gap for the country and for your own practice. In no particular order…

1. Auto enrolment. While starting with a low level of financial commitment the behavioral nudge (opt out rather than in) enabled by new systems has got millions saving with very low opt out levels.

The question now is all about how to get the savings levels up. Over time these customers will build significant pots and will need advice on how best to access them.

2. Pensions dashboard. The approach is right; open standards will allow providers, FinTech companies, advice firms and others to access customer pension information securely and reliably.

Forward-thinking platforms are building out partner ecosystems which allow specialist FinTech firms to deliver planning and advice support services. Ben Goss

Having built our own portfolio aggregation and valuation capability for the retail market over the years we know how difficult this is, but also how profound the benefits to the customer can be. Accessing information on corporate pensions will be a huge benefit to advisers too when this is ready.

The more accurate and holistic the information available, the better the guidance and advice that you can provide.

3. Automated advice will become commonplace, driven in part by dynamic FinTech companies but also incumbents determined to innovate and a supportive Regulator (see Project Innovate). The successful ones will use a hybrid model that blends the best of digital with face to face or phone based advice.

Our own AccessAdvice initiative will help advice firms open up access to their own advice digitally next year. Extending your advice (or parts of it) to clients with smaller balances; the next generation of younger clients for example will build longer term value in your own business 

4. Financial Advice Market Review (FAMR). The Treasury remains committed to progressing FAMR's recommendations. I've said before that if they are fully implemented the advice landscape will change - and rapidly.

Clarifying the boundary on guidance so that risk-based choices can be assessed without the regulatory burden of a personal recommendation will clearly be welcomed by many firms and institutions. Clarifying the suitability requirements for a streamlined process will be equally impactful.

Many firms feel they need to undertake a holistic process when actually the client only wants or needs a more focused one. Focused processes can be more efficient and profitable. 

5. Pension Freedoms. These have led all the big providers to gear up their call centres and up their game in terms of information and guidance online. They now have the capability to support very large numbers of customers and this will be a powerful channel particularly for those with simpler needs.

For those with larger pots and more complex circumstances, the demand for advice is greater. With new products such as the Lifetime Isa and a secondary market for annuities, the demand for good quality advice will only grow.

6. The new Treasury Minister. Take a look at the speech from Simon Kirby the Treasury minister on the Pensions Dashboard launch the other week.

He is clearly passionate about the use of technology to help provide consumers with the information they need to make better financial decisions and for it to form the bedrock of good financial advice on what are often complex decisions.

7. Digital support for suitability. Since 2011 the Regulator has helped the adoption of FinTech solutions for suitability. Encouraging ‘apples for apples’ comparisons of the risks that investors are willing and able to take with the risk investments represent.

Almost every quarter since 2011 has seen record usage of Dynamic Planner and the number of advisers using our iPad app has grown by 250 per cent over the past 6 months. It's now supporting discussions with many thousands of customers.

8. Project Innovate. The Regulator is now helping hundreds of firms through the authorisation process and / or to operate in the regulated space.

The Advice Unit is helping firms and FinTech companies who want to focus on automation. This feels like a tailwind for FinTech adoption amongst firms that see automation as a benefit to their operating model.

9. Modern, open architecture investment platforms. Almost all investment platforms have been in, or plan to go in, for a 'pit stop' to refresh their technology. The modern platform doesn't seek to bundle advice and guidance tools but to make integration easy with well documented APIs and open standards.

Forward-thinking platforms are building out partner ecosystems which allow specialist FinTech firms to deliver planning and advice support services so advisers get the best of both worlds; the platform’s accurate data with best of breed, independent tools.

10. Pensions Advice Allowance. This would allow people to take £500 tax free from their defined contribution pension to redeem against the cost of financial advice.

Assuming the consultation delivers it will only help grow the number of advice firms serving this market. FinTech will be critical in helping firms offer an accurate and efficient service for this level of fee. 

Ben Goss is chief executive of Distribution Technology