The Economic Secretary Harriet Baldwin spoke today (30 Sept 2015) at the Financial Conduct Authority's robo-advice conference held in London.
Good morning, and thank you for that kind introduction.
I was very pleased to be asked to speak at this event, because since I have been in the role of Economic Secretary, one of my key priorities has been to ensure that financial services are there to help hard-working people, achieve their aspirations at every stage of their lives.
Whether that’s saving for their first home, taking out a mortgage, buying a car, or saving and investing for the future.
Being able to get the right financial advice is an integral part of that help.
The UK is very fortunate to have a financial advice market where customers benefit from both well-regulated and high quality advice.
But the problem is that it’s also often expensive. In a survey carried out this year by Unbiased, the average hourly rate for professional, regulated advice was £150. And, as you will know, an hour is typically the length of time an advisor will need to spend simply clarifying the customer’s needs, objectives and financial situation. So a complex application will take much longer than that.
This tends to make regulated financial advice the province of those people with a lot of money to invest.
For instance, the majority of respondents to a Mintel survey stated that they would seek professional advice for an investment above £50,000 – but probably not for lower amounts.
So my challenge today is as follows: is it possible to provide a similar level of service to help those with more modest incomes and savings – i.e. the vast majority of people in this country?
Well, guidance services, such as Pension Wise, have done important work in closing the advice gap. We’ve brought financial education onto the National Curriculum, which should also help on the basics. And charities have also done excellent work in this area.
But I believe there is also a real opportunity opening up for the advice industry here – and that technology makes it possible.
The exciting thing about “robo-advice” – a service which uses algorithms to help customers choose financial products tailored to their particular savings goals and risk preferences – is that is has the potential to be much cheaper and quicker than face-to-face financial advice.
Not only that, but it’s also the kind of quick and simple online service we’re using elsewhere in our daily lives – and which many in the millennial generation see as standard procedure.
The data available to robo-advisers can also be used to target messages to customers at key points, in order to have the greatest impact.
Robo-advice shouldn’t aspire to be simply a way of commoditising financial advice; it should be used to make advice better.
Of course, there will always be a place for personal relationships in financial advice. So-called “cyborg advice”, for example, combines the best aspects of traditional face-to-face advice with the capabilities afforded by new technologies.
The point of technology is simply to help existing providers improve the services they offer – and put those services within the reach of new customers.
Look, for example, at ‘Nationwide Now’, which uses a fast, high-definition video link to enable customers to interact with consultants as if they were in the same room. They even offer you a cup of tea or coffee!
That makes a big difference to customers – and branches – in remote areas, though you wouldn’t necessarily call it robo-advice.
What matters is the outcome: in this case, that the customer receives the service they need without travelling all the way to the nearest available consultant.
Examples like this demonstrate how digital and traditional services can work in harmony – by using technology in innovative ways, and combining the best of the old and the new.
But as this new technology comes onto the market, we clearly need to make sure that the statutory landscape is appropriate – and that Government strikes the right balance between regulating the marketplace and knocking down barriers to entry.
In particular, I’m aware that there are firms that have developed new cheaper models of advice, but feel that regulatory issues prevent them from taking these to market.
I hope I won’t be too indiscreet when I say that one leading company told us that if they wanted to enter the online advice market, in order to comply with current regulation, their survey would have to ask 247 questions!
That is why we are reviewing the advice landscape, and launching the Financial Advice Market Review – FAMR for short – to report by Budget 2016.
We have specifically charged FAMR with examining the opportunities and challenges presented by new and emerging technologies to provide cost effective, efficient, and user friendly advice services.
It will also:
- consider the advice gap for those who have don’t have significant wealth
- look at the regulatory barriers firms may face when giving advice, and how to overcome them
- examine how to give firms regulatory clarity and the right regulatory environment so they can innovate and grow
- and encourage a healthy demand side, addressing the barriers which might put consumers off from seeking advice
We will look at a variety of retail financial products, including pensions, savings, mortgages, and insurance.
We will be looking for evidence from industry as well as from consumers.
And we want to come up with a strong package of reforms covering all aspects of the advice market.
The review will be supported by an external expert advisory panel comprising of industry and consumer voices, and chaired by Nick Prettejohn.
And the Treasury will be launching the consultation in the coming weeks.
FAMR will be complemented by a review on how the current statutory arrangements for the provision of free and impartial financial guidance, including the Money Advice Service and Pension Wise, can be made more effective.
This will ensure that we will examine the entire financial information landscape, responding to the needs of customers across all income groups and sectors.
I hope you engage closely with this review, so we can put in place the right rules to help you give your customers the best possible service.
And because a lot of this will be technology-based, as well as making sure we’ve got the right statutory environment, we want to give a real boost to technological innovation.
We are already a major player in financial technology; our ambition is now to be the major player – the leading FinTech centre in the world.
FinTech makes transactions easier; it saves the customer time and inconvenience; it boosts innovation; and, as new products are developed, it sharpens competitiveness within the marketplace.
It can also help address the knowledge gap, thereby empowering customers to make informed decisions, through initiatives such as the proposed Pensions Dashboard – a platform which would allow savers to view all their lifetime pensions in one place.
FinTech is good news for all concerned, and we’ll support the sector in every way we can.
In the near future, we will be launching an international FinTech benchmarking exercise.
This will consider the UK’s environment for FinTech against other countries and identify best practice from around the world.
It will consider FinTech in a broad range of financial services sectors –including financial advice.
I’m delighted that Eileen Burbidge has been appointed as the ‘Special Envoy for FinTech’. In this role she will promote the UK as a global FinTech hub and help develop our FinTech strategy.
She will also support Treasury engagement with FinTech firms in the UK, particularly in developing regional partnerships.
We are also committed to more open banking in the UK – because this will further help the UK’s world-leading FinTech sector.
At the last Budget, we announced that we would deliver an open standard for Application Programming Interfaces – which I can helpfully abbreviate to APIs – to improve competition and innovation in UK banking, for the benefit of the customer.
To take forward this important work, we’ve set up a Working Group made up of a wide range of stakeholders across Government and the banking and FinTech industries, which will publish a detailed framework for the design of the open API standard by the end of the year.
And of course, we will continue the extremely close working relationship with the FCA on FinTech.
The Innovation Hub, which we worked with the FCA to launch, has been hugely helpful in helping innovative business to understand the regulatory framework and apply for FCA authorisation.
Since it was launched, it has helped over 100 innovative businesses. This is a great example of the resources available to FinTech firms such as those wishing to develop robo-advice.
One of the areas we’re currently working closely with the FCA and the PRA is the feasibility of something called a regulatory ‘sandbox’.
A classic example of financial jargon!
Essentially, this is a “safe space” where innovators can experiment with new ideas at an early stage, without the burden of having to get regulatory authorisation, but with the informed consent of consumers, and appropriate risk management.
Once up and running, this could be a valuable tool for firms wishing to test robo-advice models.
The FCA is also working with the PRA to identify how technology can be utilised to deliver regulatory requirements – a potentially very valuable piece of work.
We’ve enjoyed working closely with the FCA on all these areas – so thank you, Tracey, and let’s continue the good work.
When I became Economic Secretary back in May, I set out my key priorities for UK financial services.
I put, at the heart of them, “Financial services that deliver for their customers – helping people fulfil their aspirations at every stage of their lives.”
I think that giving people more control about how they use their money is an essential part of that.
So one of the biggest things we have been doing as a Government is making fundamental reforms to give people more freedom to use the money they’ve earned in the way that works best for them.
It’s a very basic principle: it’s your money; you’ve earned it; you should be able to choose how you use it.
On pensions, for example, this Government’s reforms are giving savers unprecedented access to their pension savings. To date, over 200,000 have taken advantage of the new flexibilities.
And as more and more providers enter the flexible decumulation market, the ability to access safe and affordable financial advice will become of much greater importance to customers wishing to take advantage of these reforms.
That means a greater customer base, seeking your trusted advice – not least through the exciting new tools currently being developed, which, through FAMR, we will help you put on the market.
This combination of new technology and new consumer freedoms is a golden opportunity for you to provide a world-class service to your customers.
Everybody stands to benefit.
Your customers will be better informed; more financially resilient; better-equipped to achieve their aspirations.
And, as investments get smarter, companies should find it easier to access finance – creating jobs and growth, and a larger market for financial services.
So I hope the discussions over the next few days are productive.