New legislation, rapidly progressing through parliament, is destined to have a major impact on the advice market.

This should be excellent news for advisers and clients. That said, it looks likely to present significant challenges to providers of all shapes and sizes, and may also have unexpected consequences for adviser and adviser tech firms.

When parliament was dissolved before the July election, the Data Protection and Digital Information No 2 Bill did not make it on to the statute book.

While not announced formally in the King’s Speech, the Data (Use and Access) Bill (D(UA)) was discreetly announced in its notes. This is the new government’s replacement legislation.

When law, it will give consumers far more control over their personal data, empowering them to direct organisations to share it with third parties of their choice.

The D(UA) builds upon existing data portability rights under GDPR. It will enable the secretary of state to establish ‘smart data’ schemes, requiring secure sharing of customer data upon consumer request.

They will not just apply to financial services but a wide range of other industries, too.

For example, the government could compel supermarkets to share information on food and other purchases with whoever an individual wants, enabling them to compare online shopping baskets or better understand the balance of healthy and unhealthy food they are consuming.

The new rules could be especially valuable in addressing the shortcomings of the pension dashboard services.

While we may finally see services live in 2025 or early 2026, firms will still not be able to retain data obtained via a dashboard. However, once consumers have located missing pensions, they could use their rights under the D(UA) to deal with pension providers afterwards.

I regularly hear advisers complain of the difficulty in accessing information from Nest and several other workplace pension providers who prefer to maintain a direct dialogue with the end consumer.

Under the D(UA), consumers could invoke their rights to compel any pension provider to share their data to any service the consumer wants to receive it.

The Bill also addresses changes to GDPR and to consumer rights relating to subject access requests (SARs). As SARs are now being used by several insurers to request medical information, this may also have an impact on the industry. However, that is something for a further article.

It is important to recognise these new rules will apply to all businesses, so could have significant implications for both advisers and technology suppliers. It is conceivable that a consumer could require a former adviser to share any information they hold with a new adviser, or indeed a competitor service.

Hypothetically, a consumer could require their adviser to share information held on their investments with another adviser or online service they wish to use. Equally, a consumer might be able to require a technology provider that has previously held their information to share it with another technology system.

Under the previous draft legislation, all these issues and those relating to fines and/or other penalties for non-compliance were left at the discretion of the secretary of state. From a financial services perspective, I could see the actual rules and requirements being crafted by the Treasury, Prudential Regulation Authority and the Financial Conduct Authority.

The D(UA) is a major step forward for the UK’s digital economy. It will give consumers far greater autonomy over their personal data, with the ability to direct organisations to share their information with the people they want to.

Originally, these changes were expected to come in under the Boris Johnson administration, so they are long overdue.

Anybody who manufactures financial products or technology services, or supports those products or advisers, needs to make developing a plan to address their obligations under the Bill as a priority early in 2025.

Ian McKenna is founder and director of FTRC

The post Ian McKenna: Planning for new data legislation must take priority this year appeared first on Money Marketing.

While realising I am probably in the minority in this industry, I fear the Financial Conduct Authority is about to score a major own goal that will have dire consequences.

Changing the advice guidance boundary will cause a huge dilution of consumer protection.

It will make it easier for manufacturers and others to sell products without advice, avoiding the inconvenience of being responsible for the consequences of their actions.

This risks setting consumer protection back decades.

I passionately believe the advice guidance boundary is in the right place. Now is exactly the wrong time to change it.

We will see widespread misselling, covered up as guidance, with thousands of consumers facing significant losses at a time in their lives when they have no opportunity to earn back the money they have lost.

This risks setting consumer protection back decades

This – entirely avoidable – misselling scandal could lead to compensation payouts of a similar scale to PPI, probably, again, on a non-contestable basis.

The FCA should think long and hard before it makes a serious error that could damage the wealth of millions of people.

Guidance should carry a health/wealth warning. I would suggest a statement along the following lines: “This service is only provided as financial guidance. You do not benefit from the same protection as you would if you take financial advice”.

I anticipate the comments section below will be full of objections to this but, if the consumer is going to receive less protection, this should be made very clear to them.

As we have seen time after time, when the regulator gets it wrong, the industry pays the price

Without such a warning, consumers won’t be able to recognise the difference between advice and guidance.

We are already seeing a growing number of guidance propositions dressing themselves up to look like advice but with none of the consumer protection.

As we have seen time after time, when the regulator gets it wrong, the industry pays the price.

Ironically, the boundary changes are being proposed at a time when technology is making it possible for firms to take a fresh approach to delivering regulated advice at far lower cost and in greater scale.

Hub Financial Solutions, for example, is now able to support as many as 1,000 clients per single highly qualified adviser by combining its bespoke automated advice technology and, in some cases, non-level 4 qualified staff.

The UK can (jointly with Australia) claim a world-leading standard of consumer protection for long-term savers

This enables it to market a service to consumers who would usually be uneconomic to support through traditional advice. The firm is even going as far as collaborating with other established advice firms to buy non-economic clients from them and even agreeing to return these clients should their needs require more sophisticated advice.

This is by no means an isolated example. I am seeing more and more innovative advice firms building high-tech services to make fully regulated advice accessible, with all the consumer protection that provides, for a fraction of traditional costs.

In my work internationally, I see how consumers in other countries suffer from a lack of adequate protection due to limited regulation.

The UK can (jointly with Australia) claim a world-leading standard of consumer protection for long-term savers.

This has been achieved through hard work by advisers, regulators and broader industry players over several decades. Now is not the time to throw this away – especially when technology is beginning to deliver better solutions with the same high standard of consumer protection.

Ian McKenna is founder of FTRC

The post Ian McKenna: FCA’s advice guidance boundary review is a huge mistake appeared first on Money Marketing.

With as many as 50% of advice firm owners looking to sell in the next couple of years and several private equity-backed consolidators looking for extended runways to deliver their business plans, we can expect an unprecedented level of M&A activity.

What will this mean for adviser technology?

Market-leading technology propositions are a key element of scaling an advice firm from scratch and then exiting, leaving it to continue to grow successfully. Benchmark Capital and True Potential are excellent examples of this.

However, most advisers do not have resources to build everything from scratch, so will be using one of many other options to run their firms.

With so many sellers, buyers can be more selective and there is significant evidence already that firms with all their data in good condition are far more attractive.

For most firms, the core client record is maintained in the practice management system.

Buyers are always going to want to use the same system across all the businesses they acquire, although, even then, there are specialist skills needed to bring together the data from multiple firms.

Outside of those firms who have built their own complete systems, there are really four key players to consider in the practice management market.

Intelliflo supports approximately 50% of the consolidators and Iress around 25%, with the rest spread among others. Dynamic Planner, which does not operate a practice management system but has almost all the rest of the jigsaw, also has a significant market share among consolidators.

Equally, Fintel is rapidly developing a comprehensive proposition through M&A that firms can join as a support group rather than needing to commit to full network membership.

Again, Fintel does not have an in-house practice management solution but it does have a long-term partnership with Intelliflo and took a 25% position in startup Plannr last year.

Moving to a consolidator is a major factor in advice firms changing systems these days and may trigger consolidation among the smaller UK advice tech players.

We can also expect to see international tech providers attempt to enter the UK market. Their main challenge will be supporting all the additional functionality necessary to meet the generally higher regulatory standards in the UK.

It is important to recognise these changes will almost certainly lead to an increase in restricted advice, but this should not lead to any real consumer detriment. The independent versus restricted debate is a very 20^th century construct. In a digital world, true independence is, at best, uneconomic and, at worst, impossible.

There is a vast difference between the digital enablement of platforms, asset managers and insurers. This, in turn, impacts the operational costs/service levels of advice firms. Why should an adviser absorb the increased cost of dealing with inefficient providers, or pass them on to the client?

Post-RDR, an adviser’s ‘product’ is the advice. This will be a far greater determinant to the long-term consumer outcome than provider selection. Digital enablement provides better outcomes at scale and can open the doors for advisers to service far more people economically if they want to.

There will still be a role for some time for a white-glove, very personalised whole-of-market service, but it is likely to be very expensive relative to the newer efficiency-based services.

Restricted organisations are arguably best placed to deliver because they can scale more easily. In the advice tech market, I see a space for one or two extra key players to keep things competitive, but they will need compelling propositions.

Ian McKenna is founder of FTRC

The post Ian McKenna: Future of advice is restricted appeared first on Money Marketing.

Readers’ comments on Money Marketing editor Tom Browne’s recent article, Advisers are better than technology is ‘a big lie’, says Ian McKenna, were mainly unfavourable.

Headlines aim to attract readers’ attention, and MM is excellent at doing that. I suspect some commenting reacted to the headline alone.

Once you got past that, though, Tom produced a balanced summary of my keynote at the Artificial Intelligence in Financial Advice conference.

I stand by my conclusions and want to use this column to provide my rationale.

Artificial intelligence (AI) is an unparalleled challenge to professionals and knowledge workers. Many occupations – from graphic designers to accountants, lawyers and journalists – are vulnerable to its disruption.

So, the advice community cannot expect to be immune.

Firms making best use of AI have far more to gain than lose from such innovation, but the reality is several systems capable of conducting the technical analysis of a client’s situation and presenting financial advice already exist.

For example, Destination Retirement, from Hub Financial Solutions, is an automated advice offering now available for firms who want to find a new home for clients they can no longer economically service under Consumer Duty.

In creating a decumulation plan for a client, it runs between three and seven million calculations to find the optimal scenario based on an individual’s personal circumstances, projected mortality and the tax treatment of the different investment vehicles they have, among a range of other features.

How many permutations could a human manage?

Equally, the tools from Conquest Financial Planning can run on full automated-advice mode, be controlled entirely by an adviser, or sit somewhere in between.

Although not currently available in the UK, FP Alpha has been offering a service for several years where an adviser can scan an individual’s estate planning information in and it will produce a complete new estate planning recommendation. I could list multiple services in the US with the same ability.

The above are predominantly built on machine learning. As we get into generative AI, the opportunity becomes even greater.

Elon Musk has already said he intends to turn X into a vehicle covering all areas of finance. Musk’s ambition is not new, as identified in MM last year.

As I see it, there are three key points to consider here.

First, the advice profession currently supports, at best, 5% of the UK population. This leaves a massive underserved market. Many of these consumers would prefer face-to-face advice but cannot afford it. Which is better – no advice or advice delivered using technology?

Equally, why would an adviser not want to use technology to do the analytical heavy lifting in the advice process and, if that is acceptable, why should such technology be limited only to use by advisers?

Finally, as the technology gets better and better at carrying out the functions humans used to perform, it’s important to focus on the areas where it (so far) has yet to reach the same standard.

The highest standards of financial advice will evolve as a service where the adviser has a deep understanding of an individual’s psychology, thought processes and learning styles.

It will be the interpersonal skills that differentiate human advice from the digital experience. Technology can liberate advisers to develop that deeper understanding by removing much of the traditional administrative regulatory burden.

Ian McKenna is founder and director of FTRC

The post Ian McKenna: AI advice is a done deal; get used to it appeared first on Money Marketing.

Prime minister Rishi Sunak’s decision to call a 4 July election is bad news for the advice tech sector.

The Data Protection and Digital Information Bill did not make it through the wash-up of legislation pushed through before parliament was prorogued.

The passage of this bill has been torturous, with the government taking the maximum allowable time in the committee stage before controversially introducing it for its third reading with a mass of amendments. These were accepted because of time pressure but, again, it stalled in the committee stage at the House of Lords.

The bill would have compelled financial services providers to deliver information electronically to any organisation with the necessary regulatory permissions, at least the Account Information Service Provider permissions the Financial Conduct Authority has already put in place for open banking.

It seems inevitable an incoming Labour pensions minister will axe this long overdue and over-budget proposition

This was the second attempt to pass such legislation. The original version goes back to the Boris Johnson administration and was lost when he stepped down as prime minister.

While much of this bill addresses data protection and UK realignment with GDPR, from an industry perspective, the crucial section – part three – provided the mechanism for secondary legislation across all industries to implement smart data.

This was critical legislation to enable delivery of open finance using the consent model already adopted for open banking.

This would have swept away many of the barriers that make it take so long for providers to respond to adviser requests for information. It would have given them a legal duty to respond electronically with any information they hold.

Why would an incoming Labour minister want to put their name to a project that represents nearly a decade of Tory mismanagement?

If many of the powers described above seem vague, that is because section three of the bill was equally clear – discretion would have been given to the secretary of state to design and apply rules.

If the polls are right, we look certain for a Labour administration. It seems inevitable an incoming Labour pensions minister will axe this long overdue and over-budget proposition.

Similarly, the pensions dashboard project. The scathing National Audit Office report into it published last month alone gives a new minister justification to say it’s time for a fresh approach.

Why would an incoming Labour minister want to put their name to a project that represents nearly a decade of Tory mismanagement?

The passage of this bill has been torturous

Pension dashboards could and should have been delivered faster. However, the scope was always too broad. Too much focus has been on a platform to support those in their 50s and 60s, where the most obvious adopters for such a service would be people in their 20s and 30s already accumulating multiple auto-enrolment pensions.

If I were incoming pensions minister, one of my first actions would be to scrap the existing project in favour of a slimmed-down one focusing on auto-enrolment.

The infrastructure to deliver this has been in place for many years. It could be delivered quickly and prove an early Labour win where the previous government had overseen nearly a decade of delay.

This would have swept away many of the barriers that make it take so long for providers to respond to adviser requests for information

Let’s end with some positive news. At the end of May, the McPartland Review of Cyber Security and Economic Growth, written by former security minister Stephen McPartland, provides a long overdue assessment of data security’s impact on the UK economy and why it is crucial all enterprises constantly enhance their security offerings.

Regrettably, as parliament is now prorogued, the government cannot reply to the report. However, it is essential reading if you run a business in the UK.

Ian McKenna is founder of FTRC

The post Ian McKenna: General election is a disaster for advice tech appeared first on Money Marketing.

The intelliflo innovate 2024 conference (4 June) was the usual high-energy event, but it presented intelliflo founder Nick Eatock with the challenge of delivering a difficult message – the much-heralded Wealthlink service with SS&C Hubwise is not quite ready.

Eatock began by presenting research restating the case for improving business processes using an integrated platform. Not surprisingly, 94% of advisers think their advice journeys are not as efficient as they should be, and only 40% of workflows are currently digitised.

The argument for this is compelling, and it should not have been necessary for an advice-tech provider such as intelliflo to build this. Eatock pointed out that recent intelliflo research indicates that one in five cases onboarded onto platforms have errors because of rekeying.

Ten advice firms will go live with the intelliflo SS&C partnership in August, and other firms can now join the queue to have access later in the year. Frankly, it has taken longer for the partners to deliver this service, but when I questioned this, I was told that the scope has significantly increased in the interim.

In the last few years, intelliflo has acquired a significant number of critics, but that happens if you are the main player – our latest research suggests they now have a 60% share of the directly authorised market. So, are the delays with Wealthlink a major problem?

It will be frustrating, and some of their rivals will doubtless make a lot of noise about it. But technology projects either get delivered on time, or working properly; the latter is vastly preferable.

But technology projects either get delivered on time, or working properly; the latter is vastly preferable

It was made clear that most of the infrastructure to support Wealthlink has already been operating in the US for some time, where it has achieved a 50% reduction in submission errors. While not mentioned in the presentation, I don’t think the market has recognised that Wealthlink is the first such partnership – there will be space for a couple more. It will be far from ‘whole of market’, and the competition for those slots is intense. I think there might also be an exception if a very large platform had a limited number of customers.

Artificial intelligence is a key agenda item at any advice-tech event, so it was not surprising to hear intelliflo announce its first AI partners: Aveni, whose service goes live in its AI store today, and Money Alive, who should be there in a few months.

When I’ve spoken to intelliflo customers recently, I have heard frustration. But is that justified? My answer has to be yes and no. On the positive side, intelliflo are building towards the end-to-end solution many advisers would like to have.

They now include cashflow planning within the core price, and Wealthlink should be a great benefit if it fits how you want to work. The missing component in the UK is investment and portfolio management, but in the US intelliflo own the award-winning Red Black portfolio management and rebalancing software. Hopefully that will arrive here soon.

Areas such as management information have improved with the Amazon Quick Sight service, which has been added, and the announcement today of a link with Snowflake, a system widely recognised as the leading edge-data solution for firms who want their own data lakes. All the above is good news, but the client portal – which historically gave intelliflo a major advantage over their peers – needs a significant refresh.

I find most of its customers don’t want to find new suppliers; they want reassurance that intelliflo remains the best solution

I find most of its customers don’t want to find new suppliers; they want reassurance that intelliflo remains the best solution. There are certainly more viable options for advisers now. For too long, the alternatives were just not delivering the goods.

Changing your practice-management system is a major business disruption, best avoided if possible. Right now, I would not be looking to move, but advisers do need strong technology partners who can demonstrate they can deliver long term, so this presents a challenge to the whole sector.

We will see a lot more advice tech emerge in the next year and the power of AI will be much clearer. Today, I would focus on defining my technology roadmap and requirements with a view to conducting a full systems review in 2025.

Ian McKenna is founder of FTRC

The post Ian McKenna: Can intelliflo’s Wealthlink service deliver on its promise? appeared first on Money Marketing.

Every time I meet Brian Edelman, chief executive of FCI Cyber, I am petrified by what he tells me. But I am also reassured by the knowledge he shares, as I can act on it. I want to share some of these lessons here.

I was privileged to introduce him on a stream I was leading at the latest T3 conference in the US and I would urge you to also read my summary of his presentation at the T3 event before that, which covered important issues still very much valid for advice firms today.

This year, Edelman stressed further key issues crucial to protecting customers. While the Financial Conduct Authority is not currently as demanding as the US Securities and Exchange Commission when it comes to an adviser’s cyber security, I think it is a matter of when, not if, this will change. The industry must prepare now for more stringent regulations.

The industry must prepare now for more stringent regulations

Perhaps the most significant message is that cyber criminals now recognise what a good target advice firms are. They hold valuable data and, by their smaller nature, are more vulnerable than larger organisations. They are being explicitly targeted for attack.

Edelman stressed the importance of using the cyber security settings you already have. Most systems have strong protections but people do not use them. Have you configured and applied all you can in your email software, for example?

The end connection to the customer is a frequent vulnerability and if this endpoint (tech speak for where the data ends up) is not secure, it undermines all the good things you might have done up until then.

Advice firms are being explicitly targeted for attack

Advisers must use either secure client portals (probably the best option) or encrypted email for client communications.

I am amazed by the number of advisers still using webmail such as Yahoo and Gmail for their business email. As far back as 2008, the Financial Services Authority said in its Data Security in Financial Services paper that this was not secure enough.

Cyber is a community responsibility and, while the regulator will ultimately focus on what advisers do, platforms, asset managers, discretionary fund managers and insurers could do more to help them.

I have previously seen emails from providers responding to advisers using encrypted mail to send sensitive data asking them to submit the information unencrypted. This must stop.

Only 4% of advice firms have cyber insurance. It’s time to act

There is also the problem of large corporates expecting all advisers to use the same encryption service as them. The price soon mounts up when obtaining licences for different systems at different organisations.

Aegon, Abrdn, HSBC, Lloyds (including Embark and Scottish Widows) and Royal London are some providers using Unipass Mailock, along with many smaller companies in the world of advice, such as SimplyBiz and Just. It’s important more look to join, as advisers will find working with this list of companies easier and less expensive.

Cyber security requires constant vigilance. A recent study found 70% of small businesses that suffer a large data loss close within a year and only 4% of advice firms have cyber insurance. It’s time to act.

Ian McKenna is founder of FTRC

The post Ian McKenna: What will it take to scare firms into action? appeared first on Money Marketing.

One of the core principles at the heart of Consumer Duty is the focus on delivering value. This creates a need to consider more than just price. The regulator recognising this is an important move, particularly when it comes to protection.

Before 31 July, most protection advice was driven by the Financial Ombudsman’s view that unless an adviser could demonstrate good reason why not, they should always recommend the cheapest plans available.

I always believed this approach was flawed. If you are buying insurance to protect the people you care about the most and your own financial future, I think most would want a good product rather than just a cheap one. Indeed, I would argue this would be a far better consumer outcome.

When you look at analysis that starts with quality and adds price, a far broader range of insures are selected

For many years, some insurers have focused on offering rock bottom prices, even if their underwriting standards are more exacting and fewer cases are likely to be accepted at normal rates. Legal & General and Aviva are two companies that very much come to mind – although the latter does also play, to some extent, at the higher quality end.

In order to avoid a price war which can only be achieved by cutting back benefits to clients, most insurers have focused on the quality of their product, so much so that most plans today are far superior to the equivalent a decade ago.

Consumer Duty demands all advisers make sure their protection advice process now includes quality and price evaluations to arrive at an assessment of value.

But there is an interesting question to ask: Does it matter if you explore price first then quality, or quality then price? Data from two services shows this can make a very significant difference to the range of insurers selected.

For many years, some insurers have focused on offering rock bottom prices, even if their underwriting standards are more exacting

IPipeline’s Solution Builder software includes a product features report, which allows an adviser, after producing their price comparison, to select up to five contracts that can then be compared against up to 10 different quality features.

By comparison, Protection Guru Pro initially creates a quality analysis to which price is then added. The system then produces an analysis showing the best quality product, the cheapest and either the best product within a particular budget or another contract the adviser might select.

The table below shows that when price is the first assessment criteria, a far narrower range of insurers are selected for the report.

The same five insurers – Legal & General, Aviva, Zurich, Royal London and LV= – are selected as the most popular providers, albeit in different order across life protection, critical Illness and income protection.

When you look at analysis that starts with quality and adds price, a far broader range of insures are selected, with Vitality being most popular for life and critical illness and AIG, Guardian and British Friendly also coming into the mix.

This analysis was based on over 60,000 product searches carried out during 2023, so the sample is certainly large enough to be statistically sound.  

It is not hard to see the extent to which the UK protection market is dominated by a very small number of players. This is also reflected in volumes of new business written.

Other Protection Guru Pro data has identified that 85% of clients, given the choice between the cheapest plan and a better contract, opt for better plans, resulting in a £6 increase in premium, on average.

These findings make a strong case for comparing quality before price to achieve better outcomes. Once a client has seen a price comparison, they will fix the lowest price in their mind as a cost, whereby looking at quality first the adviser can present a more balanced assessment in line with Consumer Duty.

Ian McKenna is the founder of Protection Guru

The post Ian McKenna: Price then quality, or quality then price? Here’s how much it matters appeared first on Money Marketing.

Data is crucial to the success of any advice business.

Firms often bemoan the lack of necessary guidance to provide optimal services in this area, but legislation currently going through parliament could compel financial services companies to provide far more comprehensive information.

This could have dramatic consequences.

In the past five years, we have seen both the hugely successful delivery of Open Banking and the lamentable Pensions Dashboards Programme (PDP), which, although already four years overdue, is still a long way from delivering any real consumer benefit.

The latest Open Banking impact report identifies that 11% of consumers and 17% of small businesses are using it. Adoption has increased by just over 20% year on year.

Our sector is a key target and firms could have just a few months to prepare for major change

Of the 151 firms regulated to provide such services, 90 are providing services to support financial decision making. Currently, however, few advisers are leveraging the opportunity it provides.

Transformation

The Data Protection and Digital Information (No. 2) Bill will massively transform the way platforms, insurers and other financial services providers address data requests. From what I see, most are poorly prepared for this.

The legislation had its third reading in the House of Commons on 29 November, at which point the government introduced 240 amendments. The full transcript of the reading runs to 189 pages and is going to need detailed further analysis.

For now, let me outline the background to the original legislation and I will return to this subject once I have scrutinised all the changes.

Essentially the bill includes provisions that are key to the Department for Business, Energy & Industrial Strategy’s Smart Data project. However, it is clear from the engagement of the Treasury and the Financial Conduct Authority that our industry is a key target too.

Thus far, information has to be shared only with consumers. But, if this extends to TPPs, advisers may need significant extra support from their tech suppliers

The government has clearly learned from the PDP that compulsion will be necessary to persuade the industry to embrace its requirements.

Primary legislation was needed to force pension providers to support the dashboards project, which has been a major cause of the delays. The Data Protection and Digital Information (No. 2) Bill enables the government to compel industries to support this project with only the introduction of secondary legislation.

This will mean industries could have just a few months to prepare for major change. As such, the implication of the action should be on the risk register for every financial services firm.

Key provisions of the legislation will enable the extension of the consent model applied in Open Banking to other industries. Essentially, this means consumers can decide who they want to have their data, and give permission to so-called third-party providers (TPPs) to request this information.

A company receiving a valid information request from an authorised TPP will have a legal duty to provide this. This has enormous potential to open access to consumer financial data. For example, it could force platforms and insurers to provide information to advisers quickly — something they are currently so reluctant to do.

The government has clearly learned from the PDP that compulsion will be necessary to persuade the industry to embrace its requirements

We could see the emergence of multiple TPPs, compelling the delivery of any customer information held by an organisation to whoever the customer decides should have it.

Extra support

One area that is unclear is whether this responsibility could be extended to advisers to share client data in the future.

The General Data Protection Regulation already requires an organisation that holds an individual’s data electronically to make it accessible to them in an easily consumable digital format. Thus far, the information has to be shared only with consumers. But, if this extends to TPPs, advisers may need significant extra support from their tech suppliers.

We could see the emergence of multiple TPPs, compelling the delivery of any customer information held by an organisation to whoever the customer decides should have it

The industry is currently focusing on the distribution of data via hub services such as Origo and Finio. It could be that this legislation will lead to as many firms looking to operate such hubs as currently support financial decision services. If so, this could either present a major challenge for the industry or be a key driver for outsourcing services to hubs.

An important issue will be who pays. It is noticeable that, under Open Banking, the institution does not recover the cost of such services from the TPP.

Ian McKenna is founder of AdviserSoftware.com

This article featured in the Dec 2023/Jan 2024 edition of MM. 

If you would like to subscribe to the monthly magazine, please click here.

The post Ian McKenna: Industry unprepared for next big financial data push appeared first on Money Marketing.

Cyber security is an issue that is rarely out of the headlines. Studies show 60% or more small businesses close within six months of a data loss, so this is something to be constantly vigilant about.

A recent study from global security group Kroll, entitled The State of Cyber Defence 2023: Detection and Response Maturity Model, collected feedback from 1,000 global cyber security leaders and makes for chilling reading – not least because if a firm is large enough to have a global cyber security leader they should be on top of their cyber security needs.

The reality is anything but, with the report providing clear evidence of a very significant gap between large firms’ perception of their cyber capability and their actual resilience.

You would hope our largest financial institutions would treat protection of client data as crucial but, as anyone who does any amount of work in the workplace pensions market knows, the truth is totally different.

I see a strong case for the establishment of a whitelist of tech suppliers that have been properly audited and continue to implement every possible protection

How many times have you come across a pension provider distributing electronic statements or similar information that is password protected, while saying in the accompanying message that the password for the attachment is the client’s date of birth or some equally simple piece of information all too easily accessible on the dark web?

Earlier this year, the so-called Moveit hack was identified. This involved hackers gaining access to a widely used piece of data transfer software but, instead of seeking to ransom the software providers, they just accumulated the data that was being moved over it.
According to TechCrunch, this has impacted more than 60 million people across 1,000 organisations.

TechCrunch says 84% of these were in the US, 3.6% in Germany, 2.6% in Canada and 2.1% in the UK.

You would hope our largest financial institutions would treat protection of client data as crucial but the truth is totally different

Personally, I suspect the UK data is very conservative as one of the organisations hacked was a major payroll systems provider. As a result, many of the largest businesses in the country are now facing class actions from their own employees. Try googling ‘Moveit hack UK class action’ and you’ll be amazed by the names impacted.

This makes it very clear you simply cannot trust anyone when it comes to cyber security and businesses need to have ways not just to protect their own systems and data, but also to audit the systems of all their technology suppliers.
This is an area where technology suppliers could play a valuable role in supporting their adviser customers. Firms like this have – or perhaps I should say ‘should have’ – the ability to help advisers manage many of these cyber security risks.

Studies show 60% or more small businesses close within six months of a data loss

I see a strong case for the establishment of a whitelist of tech suppliers that have been properly audited and continue to implement every possible protection. While it is certainly true advisers must take responsibility for data in their businesses, there must also be a strong case for tech suppliers building services to help them address these ever-growing risks.
In the meantime, AdviserSoftware.com recently launched an updated version of its cyber security guide for advisers, which can be downloaded here. Stay safe everybody.

Ian McKenna is founder of FTRC

The post Ian McKenna: You can’t trust anyone on cyber security appeared first on Money Marketing.

Artificial intelligence (AI) has significantly changed how many advisers are thinking about technology and its future in their businesses.

That said, so far, beyond automating communication functions, most current adviser AI services in the UK lack a transformational case.

Visiting Future Proof, the wealth, wealth tech, social science and music festival in California recently, I saw several new systems demonstrate how AI can scale advice and serve vast numbers of consumers who are currently uneconomical in a profitable and fully compliant way.

It would bring enormous benefits to consumers and usher in a highly profitable golden era for advice firms. 

In both the UK and US, a growing number of organisations are offering estate planning services to advisers. From what I’ve seen, some US propositions are significantly more sophisticated than anything on offer here.

Because of our regulatory structure, it is unlikely many of the leading-edge US services will want to come to the UK

I’ve written previously about New York-based FP Alpha. Its expert system enables advisers to guide clients through highly complex scenarios outside their normal specialties. For example, it has recently launched its property and casualty snapshot to help clients understand their personal insurance needs as well as their wealth. 

At Future Proof, Wealth.com demonstrated their built for advisers, by advisers, estate planning tool which links to attorneys in every US state and allows advisers to scan in existing state plans so the AI can assess them and produce comprehensive client reports.

US estate planning is vastly more complex than the UK. Each individual state can have major variations in their tax rules. Deploying such technology to the UK would be a relatively simple task, given the consistency of our tax regime. 

Conquest Financial Planning, which already operates in the UK, also showed its next generation automated planning tool which will soon be able to be operated by human conversations.

Meanwhile, Alphathena demonstrated an exceptional AI-driven direct index solution that can be refined to deliver the precise needs of individual investors. This is a further example of the sort of technology I expect to significantly disturb the platform market over the next few years.

If you can meet FCA standards, you can roll out pretty much anywhere

While direct indexing is relatively new in the UK, it has become a major trend in the US. It is expected that 25% of passive investments will move from ETFs to direct indexing by 2030. The service enables the creation of a direct index based on over 1,000 ETFs and indices that can be totally personalised based on over 100 different factors, including ESG. 

My favourite tech at Future Proof was the new Advisor Core service from Your Stake. According to founder Patrick Reed, its AI enables advisers to produce a level of analysis in minutes that would normally take a couple of days – including all the holding analysis, rebalancing options and creation of a client-friendly presentation.

This can deliver what I’ve repeatedly been asked for by C-level executives at large advisers – the ability to replace most of their paraplanners with automated systems.

Many advisers I have spoken to recently are excited by the prospect of AI but frustrated that practical solutions are not yet appearing.

Based on what I saw at Future Proof, these now exist in the US. However, because of the higher consumer protection requirements of our regulatory structure, it is unlikely many of the leading-edge US services will want to come to the UK. Our advice community is only around 10% of the size of the US. It would require too much development for too little reward.

A UK presence does offer a great opportunity for advice tech firms working to build global solutions, though. If you can meet Financial Conduct Authority standards, you can roll out pretty much anywhere.

Meanwhile, UK advice tech firms can learn a lot from their American peers.

Ian McKenna is founder of FTRC. Videos explaining the above and many other systems featured at Future Proof can be found here. 

The post Ian McKenna: UK’s AI potential lagging dangerously behind appeared first on Money Marketing.