Working with the FCA was crucial in establishing the Digital Investment Adviser, according to Santander UK head of compliance Joel Viney in a research interview with RegTech Analyst.
Santander launched its Digital Investment Adviser service last month, joining the group of traditional financial institutions to provide customers with investment support. Wells Fargo launched its robo-advisor solution in 2017 and Bank CIC released its solution earlier this year. However, its not all been easy pickings for financial institutions, with UBS shutting down its SmartWealth solution down and selling it to SigFig, a personal finance FinTech.
In order to stand out in the market and differentiate itself from other solutions, Santander is looking to fill the advice gap and give consumers personal recommendations rather than just general guidance. Viney said the real aim is to provide the consumers with the education and insights so they are able to take the information and build their own decisions through the support of the Digital Investment Adviser.
Joel Viney said, “It gives a personal recommendation and full suitability assessment; whereas, most robo-advisors don’t actually do that, they offer some forms of guidance rather than an actual personal recommendation. We decided early on we wanted to stand behind a full personal recommendation and issue a suitability report and give the customer advice, rather than to guide them, in order to make their own decisions.”
The decision to move into the advice side, rather than sticking to the guidance, was done to provide consumers with an improved experience and investing ecosystem, but it also led to an easier route through regulations. Viney said that the bank wanted to stay along the route of advice and keep well away from any of the grey areas in regulations. More clarification has been distributed from the FCA on the advice side with better indications of boundaries for advice and papers published on the space.
Although, this does not mean it was easy to meet regulatory requirements when building the Digital Investment Advisor.
“Those requirements are quite onerous and more to them. It’s challenging to make sure you get the right amount of information to be comfortable with the recommendation that you give but not overburdening the journey and customer.” What Santander found was that as the FCA published more around FAMR (Financial Advice Market Review) and provided more insights into vulnerable customers and smarter communications, the bank was able to improve their own thinking and understandings.
One of the biggest hurdles Santander was intent on clearing was meeting regulations around data, and ensuring they were able to receive the right amount of information from customers to make suitable recommendations, but not make the process too laborious.
Viney said, “That’s one of the big things we see as to why people don’t engage with investments or financial services more broadly, because they don’t feel motivated to do it. Then, a lot of the time when they try, they don’t understand it because of the language or its emotionally draining.”
Santander is aiming to keep customer engagement as high as possible especially at the beginning of the journey. The challenge is to not leave consumer disheartened to join due to a long introduction. Having a long intro can remove the motivation of a consumer to start, especially when they are already hesitant to interact with their finances. Starting off the customer interaction from a low point, is never going to end well and is likely to see a lot of customers give up before they’ve even started and made investments.
“In terms of balancing information, part of that is to do with all of the work we did around MiFID II target market etc. So, we picked some very simple products to allow individuals who haven’t invested before, have something that is easier to understand, with low charging. This way, if it’s something they are just thinking about, they can just go into it. That’s why we wanted to make the entry level as low as we could, so for a lump sum of £500 or £20 a month you can jump in if you wanted to.”
Having established a strong framework for the approach to risk and a platform which builds a clear picture for customers, Viney does believe the Advisor has room to expand across investments. Maybe by offering a wider set of investments or helping to build a portfolio rather than single holdings. However, doing this will mean a shift in its balance between information and regulation. With it being more complex investing, more information might be needed, and the bank would need to re-balance.
FCA and utilising their support
Santander worked very closely with the UK’s Financial Conduct Authority (FCA) when designing and bringing its Digital Investment Adviser to life. The bank made use of a lot of the reports they have published around the robo-advisory space, and were also a part of their advice unit. This enabled them to seek help from the FCA whenever they needed it.
Viney said, “The FCA are doing a lot, the initiatives they have in within their project innovate, so the sandbox and advice unit, are excellent tools and firms should definitely engage with them if those if they are considering something like this.”
By having more interactions between the two, not only with robo-advisor firms be able to build better solutions, but the regulator will also benefit from improved services. If the FCA is having more interactions, they can start to see what firms are trying to achieve and the challenges they are facing. In turn, this boosts their capabilities in addressing any issues or challenges facing them.
“The FCA’s ability to do that within their initiatives only gets better with the more firms that engage with it because they build up their knowledge and understanding of what firms are trying to achieve and in turn they can try and respond to help.”
There is a desire from the FCA to support innovation, not just on the side of investing, but in relation to general awareness to finances and management by consumers, Viney stated.
Going into the future, there needs to be more of a balance between the platforms giving advice and those offering guidance. At the moment, a lot of the advisor platforms available are not actually advisors, under the regulatory description of advisory as they don’t offer personalised recommendations or suitability reports. Having a more balanced market is something Viney feels the regulators will echo.
A report was recently published by the FCA outlining a customer facing definition of advice versus guidance in order to help customers understand the difference. While this has been helpful to the market, the job is not solely on them, and firms should be doing more in explaining and making things more transparent. There is a need for more educational material to help the consumers and make sure they’re not intimidated by the investing world.
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