Peter Smith looks at what the industry is doing to clarify how digital distribution models should work.
If it had been suggested 20 years ago we would be taking social media for granted, people would have been pretty sceptical.
Similarly, our parents would have shaken their heads in disbelief at the prospect of conducting the likes of banking and shopping without leaving the comfort of their own home.
Nonetheless, we are witnessing a similar transformation across many facets of the UK’s financial services industry.
What digital distribution should look like
TISA members meet regularly in policy councils to discuss the implications of these developments. For two councils – distribution and wrap & platform – changes in the distribution of advice and the way companies communicate with customers are high on the agenda.
It is becoming clear that many consumers will dip in and out of advice. While this is due, in part, to an evolution in the dynamics of financial services, the RDR has sped up the process.
As a result, there is now talk about an advice gap and reports that some disenfranchised consumers can no longer access, or wish to pay for, services.
We are faced with a conundrum on how to operate efficiently and develop new models of business within the rules of the regulator, where performance is not enough when it comes to advice.
Suitability is crucial, together with the correct risk assessment, to ensure investments are appropriate. The same rules apply to online propositions as they do to traditional advice. There is much confusion over where the line is between advised and non-advised business.
To obtain some clarity for firms building new direct-to-consumer, execution-only and simplified advice propositions, TISA has formed a special interest group. It is working closely with the FCA to determine the ground rules for industry practitioners and consumers to understand which distribution stream they are in and the nature of the service being provided.
Clarification of European rules, where Insurance Mediation Directive 2 seems to indicate that, even for non-advised sales, information must be obtained about a customer’s knowledge and experience to determine product appropriateness, also needs to be sought.
It appears firms looking to advise directly may have to deal with an appropriateness test. The construction of an execution-only or direct-to-consumer proposition will need to ensure it meets the FCA’s requirements, as well as those emanating from Brussels.
The key issue is to clarify how digital models can work between the provision of rich information, tools, fund and product descriptions, and the line where you step into advice, with the risks and controls required to run a distribution model underpinned by advice.
The arrival of online and alternative distribution of financial services is here and will march on. Savvy advisory distributors are already embracing it.
Peter Smith is head of distribution engagement at TISA
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