The number of digital advice and guidance propositions available to consumers has more than doubled since the start of the year. This may seem like a lot but based on our work analysing and monitoring the new entrants on their way to market it is just the tip of the iceberg.
The vast majority of propositions coming to market are based around investment, either in accumulation or at retirement, although there are a number of insurance start-ups in the pipeline so we expect to see diversification later in the year. In the meantime, the next major trend looks likely to be budgeting and personal finance concierge services, with a number of offerings looking to debut soon.
One thing that is clear is outside of a few niche areas such as annuities there is very little appetite for independent advice in digital offerings. Delivering an independent proposition requires significant complexity, both in building the service itself and, perhaps more importantly, the user interface.
While customers might say they value independence, will they be prepared to go through the extensive additional processes it necessitates as part of an online experience? Equally, will they be prepared to pay for the extra costs involved in delivering independent advice?
This trend is bad news for the life companies, asset managers and retail platforms that could find themselves locked out of this huge new opportunity if they do not start moving quickly. Conversely, it could be good news for advice software and platform technology suppliers. Indeed, I am seeing increasing evidence these suppliers could actually become more influential than life offices and platforms in the near future.
There is a growing appetite for distribution firms to have their own vertically integrated proposition. Other projects we are working on identify real consumer benefits achievable from such an approach. It can significantly reduce the cost of advisers’ propositions and what clients pay for other parts of the value chain. The entry level for firms having their own propositions is now drastically lower. It might be achievable for those with as little as £250m in assets under advice.
If the FCA is not consciously trying to tilt the playing field in favour of vertical integration, at the very least its current approach delivers this as an unexpected consequence. The additional complexity needed to deliver independent digital solutions may also help the smaller traditional advice firms differentiate themselves by providing independence as a niche, high quality option, albeit one that carries a premium price.
Saying that, more innovation seems to be taking place in the non-advised area than advised. This suggests most organisations are still fearful of the consequences of personal recommendations and the liabilities that could accrue, either from direct FCA action or from the Financial Ombudsman Service.
While the Financial Advice Market Review final output recommended steps to address concerns about the FOS undermining the emergence of low-cost consumer options, all the actions the FOS is being asked to take are things that, in my experience, it says it already does. The proposed solution will not fix the fact the market has no confidence in the ombudsman’s impartiality, which means it is not fit for purpose.
I am becoming increasingly concerned by a number of start-up offerings in the advised space that may have read the FCA Conduct of Business rules but appear to have not taken on board the wide range of other ways in which the FCA communicates what it expects.
The recent call for further file reviews around suitability suggests its focus in this area is not going away. From what I have seen, at least some of the start-ups, especially those run by people without an industry background, could find themselves in for some very difficult meetings once the supervision teams start looking at them.
In the coming months this column will continue to look at the best and worst of new digital propositions, both advised and non-advised. This should help readers understand this rapidly changing landscape, how it will affect them and, perhaps most importantly, how to stay ahead of the diverse range of competitors emerging.
Ian McKenna is director of the Finance & Technology Research Centre