Regulatory issues around advice versus guidance and suitability create problems for digital platforms but digitalisation will march forward regardless.
I have just finished Nassim Taleb’s new book Skin In The Game. He is hugely critical of regulators, financial advisers, life coaches… oh, and consultants. It’s the bit about regulators that fascinates – the fact that there is more and more new regulation, yet old regulations tend to stay on the books, increasing the regulatory load. Of course, regulatory consultants and compliance managers love increasingly complex regulation as it increases their pay packets. So I asked advisers on Twitter, “how many pages on key features, suitability etc do you typically need to send a new client for a pretty vanilla portfolio recommendation?” The answers varied from 78 to 200 pages. It was agreed that clients never read them.
Regulatory issues around advice versus guidance and suitability create bigger problems for digital platforms than traditional advisers. If the digital platform has to imitate the 78-200 pages of regulatory necessity, nobody will sign up. The reality is that digitalisation will continue to march forward regardless of the attempts of UK regulators to hold back the tide.
The advice sector has changed exponentially in the last 15 years, partly because of regulation, but far more because of technology. Good financial advisers have flourished, quickly adopting new technology, the most important being the development of the wrap platform. Planning tools, practice management systems, Skype et al continue to help advisers improve their propositions, lower cost and, amazingly, ease the burden.
In the short term, the technology that advisers employ will be much more efficient. Systems will be joined so there will be no re-keying. When your client enters data on the digital fact find, it will directly populate reports, planning tools and practice management systems.
Going forward, artificial intelligence and big data will match “product” to client better than you can. Indeed, AI will probably create totally bespoke reports for advisers to top and tail.
Smartphones and tablets are crucial to the way financial advice is being accessed today, yet as recently as 2007, you would never have heard of either – they hadn’t been invented. Blockchain is likely to revolutionise asset management, banking and insurance. Yet there will be developments in the next few years that we cannot conceive.
Regulators must learn that more regulation is not better, especially when unread by the client. The overall cost of the 100-200 pages is colossal. In trying to create a risk-free world, the regulator is in danger of removing the risk premium.
Advisers must embrace new technology and also continue to explore services that digitalisation doesn’t offer. So far, digital platforms are pretty poor at helping with the melting pot that is money, family, emotion, law and change, together with those life-changing events: death, disability, redundancy and divorce.
I can see good advisers around for a few years yet, but with huge digital support.
Clive Waller is managing director at CWC Research