As the financial industry evolves, with more products being introduced and far more complex and advanced technological developments being implemented, Goji Investments head of distribution David Beacham says that “the advice sector is more driven by regulation than ever before”.
Beacham further states that this is “definitely impacting new and innovative product and investment opportunities”, quoting that advisers are “fairly reluctant” to advise on products such as Innovative Finance ISAs. Advisers tend to steer away from products such as this, due to their “cynicism and lack of comfort” around advising on the underlying asset class of direct lending.
“The loans themselves are not currently covered by the FSCS which is probably the biggest blocker for advisers today. We at Goji spent an enormous amount of time and effort ensuring we had a regulated structure before approaching advisers in this area, knowing we would unlikely be able to get in the door for a conversation without it,” Beacham adds.
However, while Beacham states that some advisers may feel restricted and reluctant to advise on certain products, Moneyhub CEO Samantha Seaton says that, although regulations, reporting requirements and subsequent software upgrades can prove resource-heavy, placing a significant time and cost burden on IFAs, it should “not hold back innovation and growth”.
“It is essential that customers are properly protected and a key part of this is evolving and rigorous regulation.”
Whereas Beacham states that some advisers may not be comfortable with advising on certain products, Seaton claims that “regulation can be an enabler when applied correctly” and uses Open Banking as an example, which has supported advisers in choosing the right partners.
“The Open Banking reforms have ‘transformed the way that IFAs can connect with larger financial service providers and their clients. Connecting APIs with third party platforms enables advisers to sync their managed pensions and investments, and utilise access to secure, real-time, and two-way data sharing. Ultimately, this means that they can they can cost effectively offer a much more personalised service to a higher number of clients, build loyalty, and therefore increase business revenue.”
Despite this, Seaton recognises that a “one size fit all” regulation policy does not always work and that sometimes a different approach is needed, “one that is proportionate to the impact on the individual”.
Royal London director of policy Steve Webb further comments, stating that: “Even within the current rules and regulations there is huge scope for IFA firms to innovate if they wish.”
Webb mentions the regulatory ‘sandbox’ which the FCA provided, which allows innovations to be tested in a “lighter-touch” regulatory environment. Webb states that the “biggest barriers” to innovation are the costs of complying with existing and new regulation and the willingness of advisers to invest at a time when new business is “relatively easy” to obtain via models and technologies already in existence.
Beacham echoes this view, acknowledging that advisers have been “burnt” by new propositions in the past, “most of which were found to be fraudulent in the main”. He also states that this should “definitely not hold them back from at least understanding how innovation and regulation can work together for the benefit of the end customer”.
Beacham feels as though regulators, “specifically the FCA”, need to take a more proactive role across innovation in gerenal, ensuring that fair advice can be achieved by customers “across credible, innovative investment opportunities”.
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