The climate of change and the opportunity for advisers in 2018
The whole climate for financial advisers is changing, with several landmark pieces of regulation coming into force all at roughly the same time: from the data protection regulations of GDPR (General Data Protection Regulation) to the financial rules of MiFID 2 (Markets in Financial Instruments Directive).
The transparency-focused financial services regulation of MiFID 2 came into force on January 3, and the Open Banking regulation came into force on January 13, forcing banks to share one of their most precious resources, data.
In May, the GDPR regulations come into force, in a sweeping change to the way companies can use data. For companies who fail to comply, it could mean fines of millions of pounds.
It sounds highly complicated — and a little alarming — but it’s actually an opportunity for financial advisers, says Steve Andrews, Head of Managed Services at Focus Solutions.
‘It’s putting a bit of a microscope on anyone who holds customer data.’
Other regulatory changes such as PSD2 (Payment Services Directive), also came into force on January 13, and now make it easier for customers to compare different accounts and products.
Combined, these regulatory changes could bring about a data revolution — and make it far easier for customers to use their own data to choose new products. For clued-up financial advisers, it’s an opportunity to get ahead of the pack.
‘In financial services, we’ve always had challenges with joined-up thinking,’ says Andrews. ‘There’s always this backdrop of regulatory change, and large organisations often find this challenging. Integration of data is something we’ve always struggled with — and it’s something we have to accelerate.’
The changes brought about by MiFID 2, Open Banking and PSD2 which are being embrace by new Fintechs will start to change the way people think about their money, Andrews says — and actually start to encourage and promote customers to think more carefully about their financial health.
‘In America, the way data sharing is used is much more advanced,’ Andrews says. ‘Solutions are available which can receive real time data from a customer’s bank account, allowing buying habits and patterns to be identified. For example it can identify if someone is spending say $100 a month on Starbucks, and then explain to them how they could use that to invest in suitable investment solutions, what it could be ultimately worth and then take the customer on a automated transaction journey with a nominated provider.
But while the regulatory changes of GDPR, MiFID 2 and Open Banking do represent a sweeping change to the way financial instruments are sold, it’s not one which will change the basic job of financial advisers. Advisers will just be able to use new tools, in the medium to long term.
Even the privacy rules of GDPR are nothing to be alarmed about, says Andrews. GDPR offers strict new rules on how customer data is held and used.
Andrews says, ‘It’s putting a bit of a microscope on anyone who holds customer data. There are new enforcements: but if you’ve got good processes on holding and processing consumer’s data, you shouldn’t have anything significant to worry about. Companies should be thinking about producing new privacy statements, explaining to the consumer that they’ve got rights about how their data is being used and where.’
The combined effect of all these regulations could mean that British customers finally become more choosy about their financial products, experts have suggested. Many people in Britain stick with their bank, regardless of the services it offers. In Britain, just 3.5 million people have changed bank in the past five years, according to Wired.
‘The requirement for banks to share data will change the way people think about their money’ says Andrews. ‘It will enable people to bring all their financial affairs in one place. It will enable people to take more control of their financial well-being.’
In particular, customers will be able to see a broader picture of how their habits affect their finances, using data.
‘That ability to bring all of someone’s banking data into one place will be a massive education for consumers,’ says Andrews. ‘For advisers, it means that all that data can be brought into one piece of software, for instance. It creates massive opportunities.
‘You can put all that data into one place, put it into one report, and offer one document to the customer. The landscape is changing: the next steps are efficiency, automation, and more control.’
