The Perfect Storm 2: Investment Advice, Fintech, Government and Innovation - Black Swan

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The Perfect Storm

The current regulations around retail investment advice can be improved for everyone – government, customers and operators all have a clear incentive for change. The Government has a significant financial incentive to ensure people are better advised, prepared and secure for their retirement. Retail brokers, banks and advisers need to see a reduction in the regulatory burden and associated risks of advising customers and retail customers need an alternative to the current offerings. The last time such a perfect storm occurred was in late 2012, when the Government and the FCA came together with the crowdfunding industry to deliver an outcome that was favourable for everyone. Can the same thing happen again?

Current Situation

There are a lot of start-up ‘fintech’ companies looking to address the retail investing sector, such as Investyourway, Nutmeg and Swanest. They all have differing approaches, but in general these are products that people can choose once they know what they should be doing. They are not addressing the ‘Advice Gap’, though a provider such as Moneyontoast does offer both online advice and a resulting portfolio.

The current UK regulatory environment is not conducive to new entrants offering innovative approaches to guidance or advice but does suit established players applying for additional or variations of permission.  We welcome the fact that execution only broker TD Direct recently applied for and received a new FCA permission to provide ‘specific, non-personal online, advice’ on investments. This advice is not deemed to be a personal recommendation and the lower regulatory obligations make it a more viable service for certain operators to offer.

The Role of Social

What we like most about the HM Treasury announcement is the statement ‘consider ways to encourage people to seek financial advice’.  This means they clearly have to be thinking beyond the existing unregulated ‘Money Advice Service’ provided by the Government. One such way is to consider the provision of tools that maximise the benefit of using friends, family and colleagues for help when making financial decisions. We call it social investing and believe that it can be used to bridge not only the ‘advice gap’, but also the ‘confidence gap’ which exists and stops customers making the move into retail investing.  We have looked at this in more detail in our earlier white paper “Social Investing – Opportunity to Address the Confidence Gap”.

confidence gap

What’s in it for the Government?

Take some risks now to create the optimum regulatory and business environment to address this significant challenge. Get it right and it will help ensure operators innovate and develop the right solutions and millions of people could be better off in retirement. Get it wrong and the burden on the state of millions of middle income individuals not properly prepared for retirement will be far more significant.

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