The recent disclosure by the FCA that Lloyds, NatWest, Nationwide and Santander have all been involved in projects with its advice unit is a clear indication banks are aiming to use digital as a route back into the advice market. It is important advisers prepare for their impending return.
I am sure most will say the banks will make a mess of advice again, but what if they do not? Would you want to bet the success of your business on it?
A likely battleground between banks and advisers will be providing personal financial management services. These extract information automatically from a customer’s bank account, credit cards and other services to give them a clearer understanding of their personal finances compared to just traditional online banking.
Advisers may question why such services are relevant for them to provide but they are important as they can significantly increase the level of regular client contact.
Typically, PFM customers use their service every other day and certainly multiple times per month. By comparison, they may only look at their pensions and long-term savings a few times a year.
With the introduction of the General Data Protection Regulation from May 2018 it will become mandatory for organisations to both obtain and maintain consent for all the customer data they hold.
Early research into the implications of GDPR suggest customers will only allow such ongoing consent where companies can provide them with information they value on a regular basis.
Banks elsewhere in the world have embraced PFM. In the US, over half of the top 50 banks offer such services. In the UK, however, the situation has been very different, with players actively discouraging customers from using third party aggregation through onerous changes to their online terms and conditions.
Such content will become more important for advisers to supply from January, with the launch of Open Banking APIs as part of the UK response to the second Payment Services Directive and the introduction of the Account Information Service Provider FCA permissions, which I would urge all advice firms to apply for.
PSD2 will almost certainly trigger banks to deliver more enhanced experiences.
The fact the Government has found it necessary to place implementation of PSD2 in the hands of the Competition and Markets Authority to force the top nine UK banks to properly address their new obligations speaks volumes.
UK banks are reluctant to pass on such benefits to consumers, which is a great reason for advisers to do so. If a bank cannot even offer better online banking information than an adviser, why would a client want to go to them for savings and investments?
Strong arguments can be made that banks are very conflicted when delivering PFM services. In helping consumers better manage their finances, they are designed to reduce the amount of bank charges and expensive credit they use.
Imposing such charges and selling credit is how banks make much of their profits, of course.
In order to see off any threat from banks re-entering the advice market, it is important for advisers to beat them at their own game and provide better analysis of clients’ expenditure by adding PFM to their client portals.
True Potential and Intelliflo already include this and I expect a couple of other client management systems to do the same in the near future. There are also several standalone PFM options you can consider: Moven and MoneyHub Enterprise are the firms currently attracting the most attention.
Choosing the right PFM service will be one of the best ways of making sure you do not lose any client to banks when they come back to the advice market.
Ian McKenna is director of the Finance & Technology Research Centre