Difference and Differentiation: What next for investment platforms? - Paper - Page 20
The journey
of a thousand miles…
2043 is a long way off and there will be many twists and turns in the road as the
platform sector moves into its middle years. There are some very real near-term
hurdles to overcome, but also some very real opportunities to be at the forefront
of future market changes.
The regulatory landscape never stays still for long,
rather it reacts and evolves alongside the market,
ideally to promote transparency, competition, and
safety. It is this consumer protection aspect that can
create the most difficulty for innovation. A cynic may
also suggest that incumbent providers will want to
protect the value chain and their place in it, especially
where they have a degree of market dominance.
The DeFi (Decentralised Finance) movement is
setting itself up to challenge the centralised closed
network of transactional asset exchange. While
focused on currency and lending services now,
the use of distributed ledger and smart contracts
will have a lasting impact on trading, custody and
reconciliation capabilities for platforms, fund
groups, and investment managers. But this does
rely on different commercial enterprises moving to a
different competitive model, especially where their
current point of differentiation is in that custody and
investment administration space. With the challenges
experienced by the Australian Stock Exchange in
moving to a DLT solution, it is likely to be some
years before this approach becomes mainstream –
in the meantime, initiatives like the SEC requiring
T+1 settlement are moving the industry in the right
direction for a consumer base who are now used to
seeing cash movements happen within hours. We
should hear the initial findings of the UK’s Accelerated
Settlement Taskforce by December 2023 and
recommendations the year after.
As Government and regulators get to grips with what
these technologies mean for society, it does remind
us how legislation can drive forward innovation;
regulations like Open Banking have opened the door
for new financial services and driven innovation
around payments architecture as well as accessibility
of information. The extension of this into Open
Finance should allow similar in the investments
space. Rapid, robust, and reliable data exchange
standards go a long way to democratising access to
the market and encouraging new fintech solutions to
attack longstanding problems, levelling the playing
field to enable competition, and helping drive down
costs for consumers. This will start us on the pathway
to our digital platform as FinTechs can reimagine the
adviser/investor experience, sitting atop an ‘as-aservice’ provider.
As it stands, a charge could be levelled at the retail
advice/retail investment market that it largely works to
make wealthy people wealthier. Even with digitisation
and streamlined services, the biggest area of
innovation to make a meaningful impact on the retail
investment landscape must surely be in financial
education. The FCA Financial Lives Survey, in October
2020, highlighted that 14.6 million UK adults (28% of
the total) said they had low confidence in managing
their money, while 17.7 million UK adults (34%) had
poor or low levels of numeracy involving financial
concepts. As an industry, we have yet to capitalise
on support for individuals who aren’t in the position
to have an adviser, or for those who will be the next
generation of investors, either from intergenerational
wealth transfer or just having worked hard. For many
individuals, outside of property, the pension is the
largest source of wealth, and continued engagement
and education in this area seems a good approach to
inform, educate, and improve financial behaviours.
Data from the Family Resources Survey shows that
54% of working age adults actively participated in a
pension in 2020-21; this was 80% for employees and
19% for the self-employed, so clearly a population
who are at least notionally involved with investing.
Consumer confidence in
managing their money
37%
41%
44%
39%
37%
28%
24%
22%
28%
Apr 2017
Feb 2020
Financial Lives survey
Low
Moderate
Oct 2020
Covid-19 survey
High
Figure 14 - Consumer confidence in managing their
money, FCA Financial Lives Survey7
20
7
FCA FLS April 2017/FLS Feb 2020/Covid-19 Survey 2020
