Time to capitalise on the changing face of financial ‘advice’

by Andrew Strange Director,

Email +44 (0)7730 146626

Financial services companies will be well versed in the complexities and regulatory boundaries of providing retail ‘advice’ on products. But is the current regime fit for purpose, and does it deliver? I’m not sure it does, and increasingly I think the regulator doesn’t either.

Firstly, definitions of advice feel like they were designed for face-to-face advisers, writing down details in a customer’s living room. Not only have we moved on from that, how do you offer advice, within the current regulatory structure, when your ‘adviser’ is an AI algorithm? Delivered online. Via an app. Using an AI chatbot. To a millenial?

Secondly, the consumer need for advice has, if anything, increased. Changing demographics, with responsibility for pension accumulation, decumulation and long-term care passing to the population means more advice is needed; evidence suggests human inertia often needs advice to tip it into action.

Do our various regulatory definitions of advice really support that?

I think the Financial Conduct Authority has realised this, and in the face of potential freedoms to deviate from EU rules post-Brexit, is beginning to respond. Look at its focus on defined benefit pension transfers, where it has proposed a form of ‘abridged advice’ to make a preliminary assessment of the suitability of a pension transfer. It has designed ‘drawdown pathways’ to help ‘guide’ consumers to the best outcomes (but frankly, if I was a consumer I’d feel I’d been advised). And more recently, on 31 January 2020, the FCA confirmed changes to ‘mortgage advice’, allowing greater human interaction with customers before the service is considered formal regulated advice.

But why should businesses care? Well, thinking specifically about mortgage lenders, many high street banks shut down their face-to-face and call centre sales teams in 2014; these were originally non-advised but the human interaction meant they became ‘advised’ with all the risk, training and competence requirements that takes. If execution-only mortgages can once again be secured with a degree of human interaction, then banks need to consider how they rebuild this capability. There is a first mover advantage here too - once one bank restarts this, others will have to follow.

But there is a bigger picture here too. If I was a tech-enabled start-up, I would be looking at these variations on ‘advice’, in conjunction with existing but little-used regimes such as ‘basic advice’ and be thinking how I could capitalise. If advice can be abridged, it can surely be ‘apped’? If limited human interaction can clinch a deal, but without incurring the additional risk of ‘advice’, could I use technology to create a ‘chatbot’ to achieve that outcome?

The FCA’s latest rules give businesses - in this case mortgage lenders - some welcome flexibility. But the bigger picture presents a far greater opportunity. Who will be first to take on that challenge?

by Andrew Strange Director,

Email +44 (0)7730 146626

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