Robo-adviceDec 10 2018

Fintech is the future - along with traditional advice

  • Describe what fintech is
  • Articulate why fintech might be a threat to financial advisers
  • Describe how financial advice might be able to work with robo-advisers and other fintech
  • Describe what fintech is
  • Articulate why fintech might be a threat to financial advisers
  • Describe how financial advice might be able to work with robo-advisers and other fintech
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CPD
Approx.30min
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CPD
Approx.30min
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CPD
Approx.30min
Fintech is the future - along with traditional advice

It is no use implementing a new system that is not compliant, and it remains the adviser's responsibility to ensure that the systems they use are compliant – it is common for the various fintech companies to not be directly FCA-regulated themselves.

Especially within insurance, the fintech provider is more likely to be regulated only as a broker, rather than an insurer themselves. GDPR means that client data remains in the ownership of the client, and it is the adviser's responsibility to safeguard that data through every step of the process, even if these are outsourced. 

Fintech becomes bricks and clicks

The recent trend among pure retail fintech startups is to incorporate some element of ‘traditional’ finance services, that is, bringing back a bricks and mortar element to their business.

For retail-focused fintech, some robo-advisers have restructured to split off their robo and traditional advice businesses, while some have added more expensive, personal services, such as making available limited access to financial advisers for investment recommendations.

The move into more traditional areas is being driven by a couple of factors. Firstly, having a new brand name that is unfamiliar to UK consumers means overcoming customer inertia is difficult. One leading robo-adviser estimates that around £500 is spent to acquire any new customer.

Secondly, the key selling points of fintech - that of increasing transparency and ease of use - tends towards commoditisation of the service and low margins.

Almost all fintech firms, including the larger more established ones, are currently loss making. It was originally expected that as these firms gained significant funds under management, costs would fall and the firms would move into profit. However that has not occurred yet.

Even for one well-known firm, at a level of £1bn funds under management, losses appear to becoming greater, and has led to questions around the viability of the online-only business model.

A final factor to bear in mind is research showing that advisers most add value to clients by reassuring them to stay the course, focus on their goals, and overcome ‘behavioural’ biases of making knee jerk decisions in response to short-term volatile markets.

It is questionable how effective delivering this behavioural assistance via an online robo-adviser platform will be.

The FCA is also facilitating this broadening of digital distribution channels by rolling out ‘Open Banking’ - a more open version of the EU Second Payment Services Directive (PSD2), release in January 2018.

Under these rules, the customers will have a choice to have their anonymised data released (under GDPR protections) so that other third party firms may access this data to offer competing products.

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