Technology and real-time data are going to be core to running an IFA business, not least in order to conform to the new Consumer Duty rules, according Angus MacNee, managing director of ValidPath, the network for independent financial advisers.
The network has been supporting IFA businesses for over 20 years and provides the back-office infrastructure for its member firms, including PI insurance, agency management, regulatory authorisation, as well as operating its own proprietary technology.
Consumer Duty requires advice firms to ensure the customer understands the advice being given, and the firm must be able to evidence that, MacNee said. “Customer understanding now is key to establishing a benchmark of what a good outcome could be, and technology is the way you help deliver that understanding and demonstrate to a client that they can achieve their goals in the future.”
Improved suitability
One way to improve the advice process and client understanding going forward, he believes, will be through use of open banking-style feeds to collate, with client consent, real-time information on the client’s finances. “This will better help the IFA understand the income and expenditure of the client, thereby improving suitability of advice.”
Having access to real-time information, MacNee said, will better enable the advice firm to see changes in a client’s circumstances, such as an unexpected increase in expenditure, a windfall or inheritance, which will affect the advice given. He explains: “A dynamic fact find can be constantly updated from existing data sets – such as a client’s current or savings account – that could enable the advice firm to act, if necessary. It enables the adviser to optimise for suitability and better suitability means better outcomes, which can also mean lower risk.”
MacNee believes forward-looking advice firms need to be assessing the opportunities of delivering dynamic data-based advice. “The industry’s current processes date from a time when pen and paper was the technology. For most firms this is static capture of fact find information, a static assessment of what’s valid for the client in terms of product scenario and a static file review process – and then another static snapshot at review in 12-months’ time.
“But, if you have a dynamic fact find, which is pulling in data on a regular basis, you can deliver reviews on whatever time base is right for the client’s cricumstances; that could be six or three monthly or monthly if needed. That’s not to say a firm should be reviewing on that short a time frame, unless necessary, because financial planning is about losing term outcomes, but it will be more than possible.
“That for us is the future, delivering advice in a more efficient and effective manner and empowering the adviser with the insight to better serve the client. If advisers have up-to-date information at their fingertips, it will enhance the value they can deliver to the client. They can be that trusted person behind the scenes managing the client’s finances in their best interests and helping the client have a clear understanding about their finances – and not by using information that could be up to a year out of date.”
Latest adviser queries
ValidPath has seen adviser queries increase in recent years. Top queries from advice firms handled by ValidPath’s support team over the past quarter have related to Guaranteed Annuity Rates, UK clients moving overseas, and how to handle vulnerable clients amidst the new Consumer Duty rules, according to Nicola Butterworth, Financial Advice & Compliance director, ValidPath.
She said: “In a constantly changing regulatory landscape, it is no surprise that we have seen adviser queries increase. As the FCA looks to meet the challenges of a post-pandemic recovery, policies are naturally evolving, causing uncertainty amongst advisers, and resulting in increased demand for assistance. This is further exacerbated by customers who, in re-evaluating their finances and retirement plans amidst a cost-of-living crisis, are questioning their current portfolios and seeking new investment avenues from advisers.”
ValidPath expects that as the FCA continues to prioritise protecting and safeguarding customers, advisers will increasingly need support with how to identify clients’ vulnerabilities, particularly as guidance changes are made to support Consumer Duty regulation, Butterworth said.
