This also offers the most upside in terms of scalability as it can be codified in an algorithm and delivered at a low marginal incremental cost.
Enforcing an explicit cost for this option may be a limiting factor, particularly for vertically integrated companies that may want to offer the simplified advice for free and monetise on the products they offer as has been suggested for the targeted support proposal.
FTA: Will these reforms make it easier for digital companies like yourself to operate in the UK wealth management space and attract more diverse clients?
RG: Yes, the digital journey we offer today provides regulated advice. We ask a series of questions to understand our client’s attitude to risk, financial knowledge and experience, financial situation, time horizon and investment goal.
We then use our proprietary advice algorithm to provide personalised guidance as to which portfolio our client should invest in.
However, our guidance is limited to recommending a suitable risk-adjusted return portfolio for our client to invest in. They still need to make several choices themselves, using the information and guidance we provide.
For example, they need to decide which product and investment wrappers are most suitable for their time horizon and investment goals.
The targeted support proposal could enable us to make a firm suggestion to our clients on which investment wrappers are best for them on a “people like you” basis.
The simplified advice proposal could enable us to extend the scope of our proprietary advice engine to also make a firm recommendation to our clients on how to split their investment across the various products and wrappers we offer.
FTA: What effect will the reforms in their current form have on the advice gap?
RG: If the proposals are implemented, we would expect to see more willingness and appetite from companies to cater for the needs of consumers that fall into the advice gap.
Without the threat of regulatory blowback or a commercially viable monetisation model, they will have the incentive to target the 4.5mn-plus, non-advised UK consumers with investible assets of £10,000 or more, held mostly or entirely in cash.
With the right level of support and advice, consumers who are interested in switching from saving (cash) to investing are more likely to cross the chasm.
FTA: Which client demographic is likely to benefit the most?
RG: Consumers who are:
- comfortable with technology;
- aware of the difference between investing and saving (cash) and interested in switching but not sure where to start;
- have low/limited financial knowledge and experience.
This is assuming the proposed changes will leverage technology to be delivered at scale, otherwise they will not be commercially viable.
