Few may have realised it at the time, but Q4 will be looked back upon as the point advice changed
The last few weeks of 2018 saw events with the potential to transform the future of financial advice. While Brexit may have captured the day-to-day headlines, progress on key policy initiatives and regulation, combined with seismic technological developments, means we are likely to look back at Q4 as the point when it became certain the advice market would change – although few will have realised it at the time.
As evidence, I would like to focus on four areas, but these are by no means the only relevant events.
Amazon’s play on medical records
On 27 November, Amazon Comprehend Medical was launched. This is an artificial intelligence initiative that enables Amazon to read and convert unstructured medical records to actionable data.
At first glance, you may think this has little to do with our industry, but it will have a dramatic effect on any area where life expectancy is relevant, so both life insurance and retirement planning. In fact, this may mean Amazon is less likely to enter these markets as a direct manufacturer or distributor, as it will be more attracted to supplying services to the entire industry, rather than competing in it.
Pension dashboards development
On 3 December, pensions minister Guy Opperman announced the next phase of consultation on pension dashboards and committed to legislation to mandate providers supplying data to them.
We are now seeing a huge amount of activity to progress this initiative. This will unlock vast amounts of pensions data and enable millions of consumers to better understand how prepared they are for retirement.
Blackrock and Microsoft’s retirement platform
On 13 December, Blackrock and Microsoft announced they were joining forces to build a new retirement platform.
While the plans are currently US-based, bringing that service to a country where there will be a legal requirement for pension providers to make data readily accessible to consumers should be a no-brainer. This makes the UK very attractive.
From the perspective of the government and the Department for Work and Pensions, two of the world’s largest organisations being attracted to embrace pension dashboards would be a massive endorsement of their approach.
FCA cracks down on overdraft charges
On 18 December, the FCA announced its radical plans for how banks can charge for overdrafts in the future. This is positive news for the savings industry, as it will encourage consumers to make better decisions and mean that billions currently wasted on bank charges can be converted to savings.
Time for change
I could add many more examples of change catalysts but my point is that the status quo is unlikely to remain.
Advice businesses are in better shape than they have ever been. The demand for advice far outstrips the supply. The model operated by most firms brings substantial recurring income from existing clients, with a growing number of advisers seeing no need to significantly increase their client bank.
From the government perspective, however, advice has become a scarce luxury only available to the wealthy. While this might suit practitioners, it does not serve the vast majority of consumers.
In recent weeks, it has been fascinating to see how ministers, government departments and regulators have been quietly putting together an infrastructure, including the new Single Financial Guidance Body, with enormous potential to improve financial lives. This will be beneficial to our industry if we embrace the change it offers.
The doomsday clock is counting down for the old-style financial advice market but a new and very different one is emerging.
Ask an adviser what they would like to do more of and the response will most likely be to spend more time with clients.
Technology will increasingly liberate those who embrace it.
Communication is key to successful financial planning and it will be some time before machines can communicate better with humans than other humans.
The most successful advisers of the next few years will be those best able to work with these emerging technology solutions and alliances.
Are you clear how you will adapt to this new world?
The one thing firms must not to do is ignore these changes. By the time the above initiatives deliver, firms need to be ready to capitalise on them.
Ian McKenna is director of the Finance & Technology Research Centre